BoE extends liquidity measures

The Bank of England extended its offer of three-month loans against easier collateral on Tuesday as part of a co-ordinated action by the world's top central banks to calm nervous money markets.
With the credit crunch intensifying around the world, the BoE said G-10 central banks were ready to do whatever was needed to ease a crisis of confidence that has sent interbank lending rates soaring and threatened to choke the world financial system.
The BoE will offer 10 billion pounds' worth of three-month loans on March 18 against a wider range of collateral than normal. "Tview of continuing elevated pressures in short-term funding markets," the BoE said. It would hold a further three-month auction on April 15, with the amount to be decided depending on how next week's sale went.
The BoE said the central banks have been working closely together since December when they made a similar joint announcement. This is known as the Cape Town accord as it was hatched at a meeting in South Africa last year.
The extra liquidity injected since then, alongside easier lending terms, have so far done little to ease a crisis in markets that began with fears over exposure to US mortgage lending but has since spread to almost every other area of finance. The Fed said on Tuesday it would lend up to $200 billion of Treasury securities for 28 days against a much wider range of collateral than normal. The European Central Bank plans to auction up to $15 billion in extra 28-day dollar refinancing to euro zone banks.
Financial markets reacted favourably to the joint action with bond prices falling after several days of rallying when investors had been seeking the safety of fixed income markets.
The BoE said there would now be a minimum bid rate based on the three-month overnight index swap rate but the collateral accepted would be the same as in December and January. It had first announced its intention to offer three-month loans against lower quality collateral in mid-December as part of co-ordinated action by leading central banks to tackle the global credit crunch.