KEY POINTS:
In another indication that the credit crisis is not over, the European Central Bank is to supply the money markets with an extra €30 billion ($58.6 billion) in one-week funds.
The ECB sold €178 billion of these funds to eurozone financial institutions, compared to the €148 billion it had previously said the banks would need for routine business.
Such an injection of liquidity is consistent with the ECB's approach since the credit squeeze started in the northern summer. The move follows the ECB's warning that tensions in the credit markets were "re-emerging".
Addressing a forum in Tokyo, the Governor of the Bank of France and ECB Governing body member, Christian Noyer, sought to reassure the markets.
He quoted estimates of around US$250 billion ($330 billion) for the direct cost of defaults on US mortgages.
"It is significant but bearable, especially starting from a point of very favourable economic conditions and high profitability." But such soothing words may not fit easily with the ECB's remit, which is geared to limiting eurozone inflation to 2 per cent. Last month, the rate hit a two-year high of 2.6 per cent, and the latest data from Germany points to further acceleration in November.
The ECB is not alone in trying to prevent the credit markets from seizing up again - the US Federal Reserve has announced that it will offer US$8 billion in capital to US banks, while a member of the Bank of England's Monetary Policy Committee warned that "there are indications of a tightening of the availability of credit".
- Independent
