Money-Market Rates in Dollars Drop Before Fed

(Bloomberg) -- The cost of borrowing dollars fell the most in four months before a $30 billion cash auction by the Federal Reserve to break the logjam in short-term lending.

The three-month London interbank offered rate, or Libor, for dollars fell 20 basis points to 4.06 percent, the British Bankers' Association said today. That's the biggest decline since Sept. 19, the day after the Fed lowered its benchmark interest rate a half point. The equivalent euro and pound rates also dropped.

The Fed is offering cash in the first of two $30 billion emergency-cash injections. The European Central Bank plans two $10 billion auctions this month and the Bank of England will offer 10 billion pounds ($19.6 billion) tomorrow. Policy makers are responding to about $100 billion of losses at financial institutions after the collapse of the U.S. subprime-mortgage market.

``Central banks are committed to providing banks with as much cash as is necessary to prevent pressures escalating,'' said Lena Komileva, an economist in London at Tullett Prebon Plc, part of the world's second-biggest inter-dealer broker. ``There's a consensus view among policy officials that further coordinated action will be required to achieve this.''

The three-month euro interbank offered rate, or Euribor, dropped 2 basis points to 4.56 percent, the European Banking Federation said. It was at a seven-year high of 4.95 percent on Dec. 12, when policy makers said they would combine forces to counter a short-term credit shortage. The comparable pound rate fell 1 basis point to 5.67 percent.

 

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