Another Step Into the Market for the Fed
Written by A Forex View From Afar on Tuesday, October 14, 2008The world’s major central banks are taking more unprecedented actions to steer the global credit crisis. The Fed has agreed with the European Central Bank, Bank of England and the Swiss National Bank to offer unlimited dollar funds in repos with a maturity of 7 days, 28 days and 84 days. Also, in the release statement it said Bank of Japan “will be considering the introduction of similar measures”.
This is just one of the recent measures the major central banks have taken to ease the money-markets strains. The Fed has made this decision because the inter-banking market has dried up, with banks unwilling to lend unsecured funds. The central banks announced that open market operations would be held at fixed interest.
Such operations are usually held using auctions for a limited amount of money, but this would send the Fed Funds close to zero, so this is why the “fixed interest rate” solution was chosen. The only problem for banks would be now to produce feasible collateral in order to access money from the central banks.
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