This article is from the source 'bbc' and was first published or seen on . It will not be checked again for changes.

You can find the current article at its original source at http://news.bbc.co.uk/go/rss/-/1/hi/business/7142021.stm

The article has changed 9 times. There is an RSS feed of changes available.

Version 2 Version 3
Cash rescue plan helps rates fall Cash rescue plan helps rates fall
(about 1 hour later)
A surprise move by the Bank of England, the US Federal Reserve and three other central banks to inject cash into money markets has had an immediate effect.A surprise move by the Bank of England, the US Federal Reserve and three other central banks to inject cash into money markets has had an immediate effect.
The rate at which banks lend to each other fell to 6.514% from 6.627%.The rate at which banks lend to each other fell to 6.514% from 6.627%.
There had been fears that if the rate, known as the London Interbank Offered Rate or Libor, remained high then this could lead to slower economic growth. There have been fears that if the rate, known as the London Interbank Offered Rate or Libor, remained high then this could lead to slower economic growth.
Banks have become nervous about lending money because of heavy losses linked to problems in the US mortgage market. However, some analysts warned that the decline was not significant and may not point to a long-term change in levels.
'Cautious' Co-operation
As the year end approaches, financial institutions have been hoarding money to cover their potential losses, say bank analysts. Banks have become nervous about lending money because of heavy losses linked to problems in the US mortgage market, and have increased the Libor rate as a result.
In order to ease concerns about banking sector losses and add liquidity to money markets, the five central banks said on Wednesday that they would make $110bn (£54bn) available in loans.
As well as the Bank of England and the US Fed, the European Central Bank and the national banks of Canada and Switzerland are also involved. Analysts said that the promise of extra cash was needed because the interbank rate had remained stubbornly highly despite an interest rate cut in the UK.
Many had expected the interbank rate to dip after the Bank of England trimmed its main borrowing cost last week by a quarter of a percentage point to 5.5%.
However, that did not happen and with banks having to pay more for their cash, it was only a matter of time before consumers would also have to start digging deeper to finance loans and mortgages, analysts said.
UK Prime Minister Gordon Brown welcomed the move by the central banks, telling the Times newspaper in an interview that it was "the co-operative effort I've wanted to see for some time".
The rate at which sterling is loaned over three months was not the only one to be lowered. The three month dollar rate fell to 4.99% from 5.0575%, while the rate for euros dropped to 4.9494% from 4.9525%.
'Tight times'
Despite the central banks' best efforts, many analysts were unconvinced that the massive cash injection would help stave off an expected economic slowdown next year.
The Organisation for Economic Cooperation and Development has forecast that UK economic growth will slow to 2% in 2008 from 3.1% in 2007, largely because of a weaker housing market.
It also predicts that US growth will slow at the start of next year.
The US has already cut interest rates in an effort to boost growth, and most recently trimmed its main borrowing cost to 4.25% from 4.5% this week.
And while some analysts had expected the interbank rates to come down quickly, others have warned that it will take more time before lenders are confident enough to increase the amount of risk they are willing to take.
Financial institutions have been hoarding money to cover their potential losses, say bank analysts.
"Worries about liquidity at year end can become self-fulfilling," said Leigh Goodwin, bank analyst at Fox-Pitt Kelton."Worries about liquidity at year end can become self-fulfilling," said Leigh Goodwin, bank analyst at Fox-Pitt Kelton.
The analyst added that banks' fears are especially heightened this year because they "think it will be tight, so they are cautious and less inclined to lend". Banks' fears are especially heightened this year because they "think it will be tight, so they are cautious and less inclined to lend", the analyst added.
Five central banks said on Wednesday that they would make $110bn (£54bn) available to banks in order to ease their concerns about losses and add liquidity to money markets.
The move was seen as a way to improve investor confidence following market volatility, as well as a step to boost liquidity.
Sterling's rate was not the only one to be lowered.
The three month dollar rate fell to 4.99% from 5.0575%, while the rate for euros dropped to 4.9494 from 4.9525.
Though some analysts had expected rates to come down they said it would not happen until early 2008.