Commercial banks sought slightly more funds than were available Tuesday in a three-month offer of cash made under a special refinancing arrangement announced last week, the Bank of England said. The BoE put up 11.35 billion pounds (15.9 billion euros, 22.9 billion dollars) under an auction arrangement which drew demand for 14.12 billion pounds.
Of the total on offer, 10 billion pounds was in the form of three-month money for which demand amounted to 10.85 billion pounds, equivalent to an oversubscription of 1.09 times, the bank said. For the offer as a whole, the lowest interest rate accepted was 5.36 percent, which is less than the bank's own benchmark rate of 5.50 percent. The highest rate was 6.60 percent.
Last Wednesday, when the US, European, British, Canadian and Swiss central banks announced an unprecedented joint effort to ease the global credit crunch, three-month money in London was on offer at 6.63 percent, or 113 basis points above the BoE's benchmark rate.
On Monday, it was down to 6.43 percent, signalling an easing of tension in the money markets ahead of Tuesday's offers. An analyst at Barclays bank, Moyeen Islam, said that the outcome of the BoE offer on Tuesday should help to ease interbank rates further.
In recent auctions, held in the fallout from the collapse of the US subprime home loan market, the commercial banks had bid for much higher amounts than was on offer as they desperately sought cash to fund their operations.
The credit crunch sparked by the US housing sector problems, which have caused massive losses to some banks, has been a constant cause of concern since it threatens the flow of funds to business, putting a dampener on the economy. The outcome of Tuesday's offer, with demand only slightly higher than the amount of funds on offer, could suggest that the problems in the credit markets may be easing somewhat.
Meanwhile Tuesday, the European Central Bank said it had allocated more than 348 billion euros (500 billion dollars) in a two-week refinancing operation aimed at providing banks with ample credit through the end of the year.