Libor at six-month high as Fed ends mortgage buys

Libor at six-month high as Fed ends mortgage buys

London: The cost of borrowing in dollars between banks climbed to a six-month high for a fifth day as the US Federal Reserve prepares to end its debt-buying programme designed to limit the fallout from the recession.

The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans rose to 0.292% on Wednesday, the most since 17 September, from 0.291% on Tuesday, according to the British Bankers’ Association. The Libor, a benchmark for about $360 trillion of financial products around the world, advanced for the 20th consecutive day.

The Fed expects to complete its $1.43 trillion in purchases of mortgage-backed securities and housing-agency debt this month as it phases out emergency measures taken to thaw credit markets. Three-month dollar Libor climbed to 4.82% on 10 October 2008, in the wake of Lehman Brothers Holdings Inc.’s bankruptcy a month earlier.

The cost of borrowing is rising even after the Fed kept its target rate for overnight bank loans at a record low on March 16 and repeated a pledge to leave it there for an extended period.

The Fed, which has kept the rate in a range of zero to 0.25% since December 2008, began using the extended period language in March 2009.