ECB Lends Extra 15 Billion Euros Over Easter
The European Central Bank lent euro zone banks an extra 15 billion euros on Thursday to tide them over the Easter holiday period, although banks bid for four times as much.
The unscheduled tender failed to dampen money market rates noticeably, with the bid-ask spread on overnight cash still high at 4.17/4.22 percent at 11:08 a.m. London time, above the ECB's 4 percent benchmark.
Indicative rates for borrowing for one week also moved up, with the benchmark Euribor interbank rate rising to 4.279 percent on Thursday from Wednesday's 4.268 percent, its highest in almost three months.
Three-month Euribor rose to 4.674 percent from 4.664 percent, also the highest since late December.
Other major central banks have also added extra funds to markets this week as the fire sale of U.S. investment bank Bear Stearns fanned concerns about widening fallout from the subprime crisis.
The ECB's 5-day tender followed an extra 25 billion added at its usual weekly auction earlier this week.
Forty-four banks bid for funds on Thursday and total demand was 65.81 billion euros.
One trader at a euro zone bank said the fine-tuning had just upset the market as traders wondered why demand was so high.
"I think they did not need to do the fine-tuning at all, 25 (billion euros) over was enough for the weekend and now they have just unsettled the market," the trader said. "Sixty-five demand and they allocated 15, they are sending the wrong signal."
The weighted average rate at the tender was 4.20 percent and the marginal rate, the lowest at which the ECB allots funds, was 4.13 percent, similar to the cost of funds at the last weekly auction.