Jamaica Gleaner News - Banks cut loan rates, but credit still tight - Wednesday

The cost of loans between banks fell in the United States and across Europe as investors digested last week's big interest rate cuts from the European Central Bank and the Bank of England.

The interbank lending rate on three-month loans in dollars - known as the London Interbank Offered Rate, or Libor - fell nearly 0.03 percentage points to just over 2.16 per cent, according to the British Bankers' Association.

Meanwhile, the rate for three-month loans in euros - known as the European Interbank Offered Rate, or Euribor - decreased just under 0.08 percentage points to 3.42 per cent, while the equivalent rate for pounds fell over 0.03 percentage points to around 3.28 per cent.

Interbank rates are important because they affect the cost of loans in the wider economy, for both businesses and individuals. Rates have been high in recent months as banks have hoarded cash and worried that other lenders might collapse and not pay them back.

Well above benchmarks

All three lending rates remain well above their benchmarks set by central banks -- one per cent in the US, 2.0 per cent in Britain and 2.5 per cent in the 15-nation euro zone.

That suggests bank are still reluctant to part with their money.

Before the credit crunch, widely seen to have begun in August 2007, the spread between bank lending rates and official base rates was only around 0.5 percentage points.