In the eurozone money market on Friday, a liquidity shortage was recorded at the very beginning of trading, prompting traders to wait and see if the European Central Bank (ECB) would inject more money into the financial system to calm market nerves.
The ECB issued a statement shortly after the start of trading on European financial markets on Friday, stating that it would continue to closely monitor conditions in the eurozone money market. It also announced a new cash injection into the market following a €94.8 billion injection made on Thursday in an effort to stabilize financial markets shaken by the global spread of the crisis in the U.S. subprime mortgage market. The ECB stated that the minimum interest rate the bank aims for will be 4.0 percent, but did not disclose the volume of the new injection.
The overnight lending rate in the money market on Thursday exceeded 4.6 percent due to market unrest triggered by the announcement from French BNP Paribas that it had frozen the assets of its three hedge funds exposed to the crisis-hit U.S. subprime mortgage market. Some traders reported a significant shortage of offered funds in the market. "There is a liquidity shortage in the market, so I expect the situation to be very difficult," assessed one trader. Another trader noted that, since the ECB offers euros and U.S. markets open later in the afternoon, many European banks will face significant problems with dollars. (H)
