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Bank of England boosts UK money markets with £4.4bn cash injection

19 September 2007
The Bank of England injected £4.4bn in emergency loans into the financial system yesterday in an effort to calm the continuing financial crisis that has seen the markets suffer since the global credit crunch hit.

The Bank has announced that it decided to release the funds following a spike in overnight lending rates – a reaction to the continuing financial uncertainty over the beleaguered bank, Northern Rock.

In a move that has shocked many industry experts; the Bank of England has appeared to do a complete turnaround from its usual noncommittal approach witnessed in previous economic troughs.

However, the injection has been successful in bringing the overnight lending rate down to 6.14250 from 6.46875 and the key three-month Libor rate has also showed signs of settling.

In a statement, the Bank said: "The Bank's objective is to ensure that secured overnight rates should be close to Bank rate."

A turbulent week has seen the BoE break with its usual policy of stepping back, after discussions with the Treasury and the FSA led to the Chancellor pledging support to Northern Rock in the form of a watertight guarantee of savers’ deposits, after more that £2bn was withdrawn as customers feared the bank’s collapse.

Now as the media frenzy calms, other mortgage lenders such as the Alliance and Leicester and Bradford and Bingley are reporting that their shares are also recovering following the government guarantee.

Across the pond, the US financial market has also seen drastic moves to alleviate an acute shortage of funds available in the debt markets. In the first cut in four years, the US Federal Reserve reduced interest rates to 4.75% from 5.25%.

It is thought that other countries’ economies will follow suit in what hopes to be an easing of the global money markets.

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