Frankfurt: The European Central Bank pumped more money into the eurozone banking market on Friday in response to fears over the US housing sector, taking its cash injections to 155.85 billion euros ($212.98 billion) in two days.
The ECB’s fresh move followed a worldwide scramble by central banks to ward off a global credit crisis linked to the risky US subprime loan market.
The bank said in a statement to traders it was making 61.05 billion euros available on Friday after injecting a record 94.8 billion euros on Thursday.
The ECB, the guardian of the euro, said the fresh move was a “fine tuning” operation which “follows up on the operation conducted yesterday and aims to assure orderly conditions on the euro money market.”
The cash injections by the Frankfurt-based ECB, which enable commercial banks to borrow from the central bank to meet their liquidity needs, are designed to forestall a credit freeze linked to problems in the US subprime mortgage market.
Subprime loans are offered to Americans who have a poor credit rating and might otherwise be denied credit.
The current crisis stems from concerns that banks exposed to losses in the high-risk subprime market might have insufficient cash to continue lending normally, thus causing a credit crunch.
Heinrich Bayer, an analyst at Postbank, said the ECB’s second intervention “indicates there is still some nervousness in the market.”
The Federal Reserve and Japanese central bank made similar interventions in the preceding 24 hours to ensure that money markets continue to function normally.
The ECB pumped in more on Thursday that it did after the September 11, 2001 attacks on the United States which rattled world financial markets.
On Friday, the ECB said the cash, in the form of loans, would be made available at a rate of 4.0 percent for loans of a minimum of one billion euros.
Following the ECB’s move on Thursday, Japan’s central bank injected one trillion yen ($8.5 billion) into the money markets on Friday.
The intervention of central banks was making investors shaky on Friday and interpreted by many as a signal that the credit squeeze was more serious than first thought.
London’s FTSE 100 shed 3.14 %, in Paris the CAC 40 plunged 2.99% while Frankfurt’s DAX 30 lost 1.63%.
The ECB has indicated it wants to raise interest rates in September because it is concerned about the risks of inflation in the wake of an economic upturn in the eurozone.
David Owen, an analyst at Dresdner Kleinwort, said he believed the bank would stick to its plan to hike its key refinancing rate “assuming some kind of normality reasserts itself.”
“Central bankers are in constant communication with their counterparts in the markets ... they undoubtedly know more about what is happening than many market participants,” Owen added.