The Sterling Crisis: Money-market rates touch 100%

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The Independent Online
MONEY-MARKET interest rates touched 100 per cent yesterday as the City came to terms with the sterling crisis, Michael Harrison writes. The rates applied to very short term deposits and loans held for a few days.

The high rates meant that any speculator wanting to borrow pounds 100m and sell it immediately for German marks would have to be supremely confident that sterling would be devalued quickly by a percentage greater than the level of interest payable. However, Stockholm put London in the shade, with Sweden's central bank fixing overnight lending at 500 per cent, daring speculators to bet on a devaluation of the krona.

The irony is that the higher money market rates go, the more likely it is that a devaluation is on the cards. 'They tend to be a sign of panic,' one dealer said. As it proved last night, for Norman Lamont, Britain and the pound.