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[Rogerdodger]

ECB injects €95bn to help markets
By Gillian Tett in London, Richard Milne in Frankfurt and Krishna Guha in Washington

Published: August 9 2007 12:59 | Last updated: August 10 2007 04:17

The European Central Bank scrambled to head off a potential financial crisis on Thursday by pumping an emergency €94.8bn ($131bn) into the region's banking system after liquidity in the interbank market started to dry up, threatening banks' access to short-term funds.

The cash injection was the biggest in the ECB's history, exceeding the €69bn provided the day after the terrorist attacks of September 11 2001. The ECB also made an unprecedented one-day pledge to meet 100 per cent of all funding requests from financial institutions.

The ECB action followed a sharp increase in the rate at which banks are prepared to lend overnight to each other. It was designed to ensure that money markets continued to function.

The rise in the interbank rate swiftly spilled over into the US. The Federal Reserve did not implement any emergency steps, but put an unusually large $24bn into US markets in scheduled open market operations.

The Bank of Canada, meanwhile, issued a rare statement in which it pledged to "provide liquidity to support the stability of the Canadian financial system and the continued functioning of financial markets". Reuters reported that the Bank of Japan injected 1,000bn yen ($8.45bn) in funds in its regular money market operation Friday after a slight rise in the benchmark overnight call rate to a reported high of 0.54 percent. The Reserve Bank of Australia in turn injected A$4.95bn into the system through repurchase agreements. The Bank of Korea said it stood ready to inject funds as well.

The moves by the central banks succeeded in bringing down the overnight interbank lending rates to more normal levels, though the US federal funds rate remained above its target in late trading.

Stocks plunged and government bonds jumped as investors sought safety in low risk assets. The yield on the two-year Treasury fell 22 basis points to 4.44 per cent. Yields on 30-day commercial paper rose 5 basis points to 5.32 per cent, equalling its highest rate since 2001.

[relax]

ECB are planning ro raise rates in september - how stupid is that if they are injecting money to the markets

[ogm]

ECB are planning ro raise rates in september - how stupid is that if they are injecting money to the markets

No one will raise any rates anymore. The financial markets are destabilized, bigger threat here is deflation as the mountains of credit get destroyed.