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ECB injects more funds into money market

The European Central Bank (ECB) injected €61.05 billion ($83 billion) into the money market on Friday after pumping in huge funds on the previous day.

The move was aimed at maintaining short-term rate stability, according to the Frankfurt-based central bank of the Eurozone. Friday’s cash injection came after the European Central Bank had unexpectedly pumped €94.8 billion ($129.6 billion) into the market on Thursday. Thursday’s injection is the largest liquidity injection in the history of the ECB. The average rate for Friday’s operation came in at 4.08%, whereas the ECB had offered unlimited overnight funds Thursday at exactly 4%.

ECB spokesman Niels Buenemann said Thursday’s overnight liquidity injection was unusual, but added that it had been motivated by the aim “to ensure orderly conditions in the money market.” The ECB wanted the money market rates close to their key refinancing rate of 4%, and when they spiked up well above that level, the bank had decided to act, he said. The spokesman denied that this conflicted with repeated ECB indications that an interest rate hike was on the cards for the Sept. 6 Governing Council meeting.

Although aimed at settling markets, Thursday’s ECB fine-tuning operation caused widespread anxiety on stock markets around the world. The US Federal Reserve also provided the money market with two smaller injections. Investors believed that the central banks foresaw serious problems in the banking sector arising from the US subprime mortgage crisis. Wall Street fell sharply with the news, and the decline spread to Asian markets on Friday and to Europe when markets opened, although European markets later recovered some lost ground. (