Central banks inject cash to calm markets
Saturday, August 11, 2007
CENTRAL banks across the Asia Pacific yesterday joined a concerted global effort to restore calm to financial markets and ward off a full-blown credit crunch.
The Bank of Japan injected one trillion yen (US$8.5 billion) into the money market while Australia's central bank pumped US$4.2 billion into the banking system, more than twice the daily average.
The BoJ "needed to stabilise money market interest rates," said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo and a former BoJ official.
"This increase in interest rates globally is reflecting the increasing credit risk of some financial institutions," the economist said.
Other Asian central banks sought to soothe jittery markets by promising that they too were ready to intervene if necessary, as share prices slumped around the globe on worries that more investment funds might be hit by the turmoil.
Singapore's central bank said it stood ready to inject cash while South Korea's central bank said it would "promptly act" if needed.
Worries about problems in the US mortgage market have caused liquidity to dry up in money markets as private banks withhold funds, prompting the Japanese, US, Eurozone and other central banks to offer extra cash.
The move came after French bank BNP Paribas said it was freezing three funds that had exposure to US subprime mortgages as liquidity in the market dried up.
The European Central Bank Thursday pumped a record 94.8 billion euros (US$130.2 billion) into the eurozone money markets while the US Federal Reserve made a more modest US$24 billion available to US commercial banks.
The ECB's massive injection was even more than the bank pumped in after the September 11, 2001 terrorist attacks which roiled world financial markets.
The BoJ's injection was smaller and by no means unprecedented, but it was the highest since it put up one trillion yen on June 29.
The main concern is that if the banks become increasingly reluctant to provide funds, the broader economy as a whole will slow since businesses will not be able to finance their operations.
If that happens, there could be knock-on effect as spending and employment fall, which could prompt central banks to cut interest rates to try to head off the risk of a recession, where growth turns negative.
But analysts said that so far the impact of the US housing sector woes on overall economic growth still appeared to be contained, particularly in Asia.
"I think the risk to global growth at this stage is still not significant," said Societe Generale's chief Asia economist, Glenn Maguire.
"We're seeing central banks do what is appropriate and that's to supply precautionary funds to the market," he added.
AFP
The Bank of Japan injected one trillion yen (US$8.5 billion) into the money market while Australia's central bank pumped US$4.2 billion into the banking system, more than twice the daily average.
The BoJ "needed to stabilise money market interest rates," said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo and a former BoJ official.
"This increase in interest rates globally is reflecting the increasing credit risk of some financial institutions," the economist said.
Other Asian central banks sought to soothe jittery markets by promising that they too were ready to intervene if necessary, as share prices slumped around the globe on worries that more investment funds might be hit by the turmoil.
Singapore's central bank said it stood ready to inject cash while South Korea's central bank said it would "promptly act" if needed.
Worries about problems in the US mortgage market have caused liquidity to dry up in money markets as private banks withhold funds, prompting the Japanese, US, Eurozone and other central banks to offer extra cash.
The move came after French bank BNP Paribas said it was freezing three funds that had exposure to US subprime mortgages as liquidity in the market dried up.
The European Central Bank Thursday pumped a record 94.8 billion euros (US$130.2 billion) into the eurozone money markets while the US Federal Reserve made a more modest US$24 billion available to US commercial banks.
The ECB's massive injection was even more than the bank pumped in after the September 11, 2001 terrorist attacks which roiled world financial markets.
The BoJ's injection was smaller and by no means unprecedented, but it was the highest since it put up one trillion yen on June 29.
The main concern is that if the banks become increasingly reluctant to provide funds, the broader economy as a whole will slow since businesses will not be able to finance their operations.
If that happens, there could be knock-on effect as spending and employment fall, which could prompt central banks to cut interest rates to try to head off the risk of a recession, where growth turns negative.
But analysts said that so far the impact of the US housing sector woes on overall economic growth still appeared to be contained, particularly in Asia.
"I think the risk to global growth at this stage is still not significant," said Societe Generale's chief Asia economist, Glenn Maguire.
"We're seeing central banks do what is appropriate and that's to supply precautionary funds to the market," he added.
AFP
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