The European Central Bank (ECB) announced Wednesday it was pumping €75 billion ($105 billion) into the market in a renewed attempt to ease tight credit conditions and smooth interest rates.
The European Central Bank said the add, with a three-month term, was the second move of this kind in its history. In the first such operation announced on August 22, the ECB added €40 billion over three months. The bank has intervened in the money market repeatedly since August 9, adding funds in one-day open market operations, although on Tuesday it drained €60 billion ($83 billion), as money market interest rates dipped below its 4.00% benchmark. The ECB also drew back from a planned rate hike at the monthly meeting of its board of governors on September 6, leaving the key rate at 4.00%. On Monday, the bank provided €269 billion ($373 billion) at its weekly auction, 13 billion more than was being withdrawn from the previous week’s operation.
The bank has been the most active among major central banks in acting to counter the effects of the US subprime mortgage crisis that has forced rescue action at two smaller German banks and hit profits at others. Banks have shown strong reluctance to lend to each other overnight as they generally do to smooth out short-term cash flows, driving up money market interest rates as a result. (m&c.com)