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Bank seeks to ease credit worries Bank lends £10bn to ease crunch
(9 minutes later)
The Bank of England is set to offer lenders £11.4bn in funds as it tries to limit the impact of a global credit crunch and high borrowing costs. The Bank of England has lent banks and financial institutions £10bn in a move analysts expect to ease the impact of a credit crunch and high borrowing costs.
It is one of five central banks that have pledged to inject $100bn (£49bn) of emergency cash into money markets. Borrowers bid for the cash at auction with 75% of bids allotted at the lowest rate 5.36% - below the central bank's official rate of 5.5%.
The aim is to cut the cost of lending between retail and commercial banks, which has jumped in the past few weeks. The highest accepted rate was 6.6%, giving a weighted average rate of 5.949%, the Bank said.
Should the borrowing costs stay high, then they may end up being passed on to It is one of five central banks that have pledged emergency cash.
consumers, slowing economic growth. 'No silver bullet'
On Monday, the US Federal Reserve made $20bn available through auction, though it did not say how many banks took advantage of the extra money. The aim of the cash auction was to cut the cost of lending between retail and commercial banks, which has jumped in the past few weeks.
It had remained stubbornly high despite interest rate cuts in the UK and US.
Should the borrowing costs stay high, then this may end up being passed on to consumers, slowing economic growth.
The European Central Bank said on Tuesday that it would offer up to $500bn to the markets with more available if needed.
And on Monday the US Federal Reserve made $20bn available through auction, though it did not say how many banks took advantage of the extra money.
US Treasury Secretary Henry Paulson said on Monday that there was no "silver bullet" to solve the credit market problems.US Treasury Secretary Henry Paulson said on Monday that there was no "silver bullet" to solve the credit market problems.
Cash lubeCash lube
Analysts said the extra cash was needed because the interbank lending rate had remained stubbornly high despite interest rate cuts in the UK and US.
Global financial markets have been dealing with a number of problemsGlobal financial markets have been dealing with a number of problems
In London, a key banking rate, called the Libor, dropped for a third session on Monday, signalling that the central banks' rescue plan may be having an effect. In London, the Libor rate - at which banks lend to one another - dropped for a third session on Monday, signalling that the central banks' rescue plan may be having an effect.
The Libor, which stands for the London Inter-bank Offered Rate, dipped to 6.431%, compared with 6.627% on Wednesday last week when the central banks unveiled their rescue plan.The Libor, which stands for the London Inter-bank Offered Rate, dipped to 6.431%, compared with 6.627% on Wednesday last week when the central banks unveiled their rescue plan.
The lower the rate, the cheaper it is for banks to borrow money.The lower the rate, the cheaper it is for banks to borrow money.
As well as the Bank of England and Fed, the European Central Bank and the national banks of Canada and Switzerland are also involved in the plan. As well as the Bank of England and the Fed, the European Central Bank and the national banks of Canada and Switzerland are also involved in the plan.
Together, the banks are to inject at least $600bn.
The main reason banks have been unwilling to lend to each other is a downturn in the US property market.The main reason banks have been unwilling to lend to each other is a downturn in the US property market.
A surge in mortgage defaults and bad debts has forced many banks to cut the value of their mortgage investments, costing them billions of dollars.A surge in mortgage defaults and bad debts has forced many banks to cut the value of their mortgage investments, costing them billions of dollars.
As a result, the banks fear that they might need any spare cash they have to cover their losses.As a result, the banks fear that they might need any spare cash they have to cover their losses.
The move comes as the UK's Treasury select committee prepares to question Bank of England governor Mervyn King.