Loans deep freeze
THE deep-freeze engulfing the money markets intensified yesterday as commercial banks pushed up the interest rates at which they lend to each other.
Interbank lending rates, also known as Libor, rose to record levels as banks turned off the taps to conserve cash.
The gap between the official Bank of England interest rate — currently 5 per cent — and Libor is seen as a crucial test of confidence.
The overnight Libor rate for the pound surged to 6.78 per cent, while the three-month rate rose to 6.3 per cent.
The overnight dollar Libor rate saw a record one-day rise to 6.87 per cent, the highest in more than seven years.
The Libor increase came despite concerted efforts by central banks to pump money into the system in an attempt to unlock the credit markets.
Kim Rupert at Action Economics said: “It is the epitome of credit turmoil. There’s too much fear in the market.
"Everybody is hoarding cash, hoarding reserves, not trading funds with each other.”
