ECB 'on alert' over interbank rates

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The Independent Online

Jean-Claude Trichet, president of the European Central Bank, said yesterday that central bankers remained on alert as inter-bank lending rates climbed outside the US.

After chairing a meeting of G10 central bankers in Basel, Switzerland, Mr Trichet said: "The alertness of central banks was very important, as always but of course also in present circumstances... We are in close contact."

His comments followed strong action by the US Federal Reserve on Friday as it announced an injection of $200bn (£99.6bn) of liquidity into the US banking system. The Fed's move helped ease dollar inter-bank rates yesterday, but sterling and euro rates continued to rise. Bankers are hoping for more concerted action from central banks akin to the coordinated liquidity injections announced in November. Those moves helped to ease markets for a while but panic has taken hold again in recent weeks.

Sterling three-month Libor, the rate at which banks lend to each other, continued to climb yesterday, reaching 5.784 per cent after easing to 5.441 per cent in January. The Bank of England will announce its long-term repo operation today. It sold £10bn of three-month loans to banks on 18 December in the first of two auctions.

Mr Trichet said the central bankers "had no technical discussion" on central bank co-ordination but said they had an important role to play in maintaining confidence.

Mr Trichet adjusted his stance on the euro's rise as he expressed concern about the currency's appreciation against the dollar. He said: "We are concerned about excessive exchange-rate moves in the present circumstances."

The euro hit a record $1.5459 on Friday after the ECB left its benchmark interest rate unchanged at 4 per cent. The euro's rise has been helped by Mr Trichet's tough rhetoric on inflation as the Fed has shown itself ready to cut interest rates to support the banking system and try to limit the impact of a downturn.