Friday, 2 May 2008
₤50 billion does not bring much stability
So far, the special liquidity scheme hasn't brought much relief to the stagnant interbank lending market. Spreads between 3 month interbank lending and equivalent maturity repos are still elevated.
Between April 23-30, spreads fell by about 14 basis points. However, on May 1st, spreads rose again by 5 basis points. Overall, spreads are some 75 basis points above where they were before the credit crisis.
I will give you a free forecast. Within a few weeks, we will see the UK banks again complaining that the Bank of England hasn't done enough to revive credit markets. It won't be long before we hear "Oh, credit conditions are too tough, there isn't enough liquidity and its all the Bank of England's fault. If only they would cut interest rates, and provide more support, then Britain's economy future would be again secured".
Just wait, the banks will be back for more public sector support. They will be again looking for the public sector to cough up for their mistakes.