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U.S. Fed Agrees to $30 Billion Swap With Four Central Banks (including RBA)

Discussion in 'The Economy' started by Billv, 24th Sep, 2008.

  1. Billv

    Billv Getting there

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    Sept. 24 (Bloomberg) -- The U.S. Federal Reserve agreed to channel $30 billion into the global financial system by opening currency swap lines with central banks in Norway, Sweden, Denmark and Australia.

    The Fed set up the currency exchange to address ``elevated pressures'' in dollar funding in markets, the Board of Governors said today in a statement.

    The U.S. is broadening its effort to revive confidence in markets as concern mounts that a $700 billion plan to rescue the banking system may face delays in Congress. The Fed last week expanded its swap lines with the European Central Bank and Swiss National Bank by $70 billion, and created $110 billion in new facilities with central banks in Japan, the U.K. and Canada.

    ``This is another weapon in the arsenal of governments aimed at boosting confidence,'' said Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney. ``Hopefully it will help market sentiment, stop banks from hoarding cash and start greasing the wheels of the financial economy.''

    After the announcement, borrowing costs for Australian banks fell from the highest since Bear Stearns Cos. collapsed six months ago.

    The difference between the rate banks charge each other for three-month loans and the overnight indexed swap rate declined to 82.5 basis points as of 4:10 p.m. in Sydney from as much as 93.25 points earlier today.

    The yen declined as the plan gave investors confidence to buy assets that have higher yields outside Japan. The yen fell to 155.69 per euro at 7:38 a.m. in London from 154.63 late yesterday in New York. It was at 105.92 versus the dollar from 105.56.

    Working Together

    The programs ``are designed to improve liquidity conditions in global financial markets,'' the Fed said. ``Central banks continue to work together during this period of market stress and are prepared to take further steps as the need arises.''

    Central bankers are trying to break a credit logjam in money markets as $522 billion in writedowns and losses tied to the U.S. mortgage market prompt bankers to hoard cash.

    ``This agreement is a part of our precautionary measures,'' said Riksbank Governor Stefan Ingves in a statement on the bank's web site. ``Our assessment is that financial stability in Sweden is satisfactory and that the Swedish banks are profitable and solvent.''

    Norway's central bank, or Norges Bank, yesterday supplied $5 billion in one-week dollar currency swaps to ease liquidity in financial markets. The bank also swapped $5 billion to ease dollar shortages last week.

    `Safety Measure'

    The Fed's swap arrangement ``is just a safety measure,'' said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. ``If the situation doesn't improve then'' the Nordic central banks ``could draw on this facility but if not I don't think they will need to.''

    more here
    Bloomberg.com: Worldwide
     
  2. perky

    perky Well-Known Member

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    Only problem is that the spread was 30 basis points during the 1st week of September - so unless we get further falls then Oct 4th and possible rate reduction by the RBA may not be passed on by the banks...
     
  3. Billv

    Billv Getting there

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    That's a worry, I was hoping for another 0.25% reduction to ease some of the pain on borrowers

    Cheers
     
  4. Billv

    Billv Getting there

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    and a simpler version from BBC

    To ease the pressure on money markets the US federal Reserve is making available to central banks in Denmark, Norway, Sweden and Australia $30 billion (£16.1 billion) The $30 billion will be split between the four countries with Sweden and Australia having access to $10 billion and Norway and Denmark having $5 billion each.

    The Federal Reserve has already made a similar commitment to central banks in the UK, Japan, Canada and the European Central Bank for $180 billion. The reason behind it is to “improve liquidity” whilst credit is limited.

    The commercial banks in those 4 countries can access the $30 billion as a loan to improve short-term funding requirements. The US government also said they will take further steps if needed.
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    Hi BV,

    I wouldn't be too worried.
    I heard a few weeks ago that according to 18 economists there was a 100% chance of a 0.25% reduction and 63% chance of a 0.50% reduction in current rates.

    We'll just have to wait a week or so to find out.

    Cheers,

    Dan