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Short-term interest rates fall on central bank cash injections

Notch another day of modest progress for the credit markets.

Short-term interest rates declined early Tuesday, as several central banks in Europe injected more cash into the financial system. The London rate for three-month loans in dollars fell 4 basis points to 3.47%, its 12th straight daily decline. The three-month rate for the euro, or Euribor, fell 5 basis points to 4.85%. However, interest rates in Asia rose, with the Hong Kong interbank offer rate, or HIBOR, rising 10 basis points to 3.84%

In addition, the difference between what banks and the U.S. Treasury pay to borrow dollars for three months, the TED spread, narrowed 14 basis points to 262 basis points Tuesday. The TED spread has now declined 172 points from 434 basis points more than a week ago.

Short-term rates, including overnight rates, are key sources of cash for corporations and other large institutions, which use the cash to pay suppliers, make payroll, roll over debt etc. Hence, very high overnight and short-term rates will discourage corporations from conducting business, restricting commerce and slowing the economy, economists say.

Continue reading Short-term interest rates fall on central bank cash injections

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Last updated: February 11, 2012: 04:00 AM

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