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The slowdown in global credit markets continues. Interest rates for three-month loans in dollars continued to rise early Thursday, as a coordinated interest rate cut by the world's major central banks failed to jump-start bank-to-bank lending.

Credit markets: Freeze frame

The London three-month rate for dollar loans increased 23 basis points to 4.75%, Bloomberg News reported Thursday. Meanwhile, the London interbank offered rate, or LIBOR -- the rate banks charge each other for overnight dollar loans -- decreased 29 basis points to 5.09% early Thursday morning; nevertheless, the level still is a very high rate for short-term cash.

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, a very high overnight will discourage corporations from conducting business, restricting commerce and slowing the economy, economists say.

Economist Peter Dawson told BloggingStocks Thursday the failure of short-term, bank-to-bank rates to drop indicates that monetary and fiscal officials will have to do more to maintain financial system liquidity. "Banks remain in a state of fear. Basically, the way things are now banks are assuming that their competitor banks are insolvent unless proven otherwise," Dawson said. "It's a breakdown in trust and its constricting commerce. If it continues it's going slam GDP on both sides of the Atlantic."

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Short-term interest rates rise again, as tight credit conditions continue originally appeared on BloggingStocks on Thu, 09 Oct 2008 10:30:00 EST. Please see our terms for use of feeds.

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