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October 16, 2008

Libor Shows Signs of Recovery

The three-month dollar LIBOR fell 5 basis points to 4.5 percent today versus 4.55 percent yesterday, according to the British Banker’s Association. Leaders report positively that sentiment seems to be changing… Is it, really? LIBOR is so very popular as it is also the benchmark that sets the interest rate on most loans and mortgages.

The London Interbank Offered Rate or LIBOR is a benchmark that shows the interest rates that banks charge each other to borrow (lend) money, plus a premium for risk compensation.

The global credit crisis pushed LIBOR rates at extreme highs, as banks literally stopped lending to each other amid fears of insolvency. Despite the government intervention and the billions of cash pumped into the financial industry globally, confidence is not yet restored, but at least – and at last – LIBOR rates reacted and are moving in the correct direction.

The drop came as a result of the coordinated decision of central banks, including Bank of England, the European Central Bank, and the Swiss National Bank, to offer lenders unlimited access to cash. It might sound crazy and maybe even unrealistic, but having no other option in hand central banks are trying to unlock the credit markets.

With no availability of credit in the markets, lending will freeze both for consumers and businesses alike… Growth will become another word in the dictionary, and unemployment will rise and rise, as business default or dramatically cut costs down to survive in a semi-dormant world economy. And that’s scary!

2 Responses to “Libor Shows Signs of Recovery”

  1. Ray The Money Man Says:

    The Libor is a great indicator. The 3 Month T-Bill and the 2 Year Swap Spread are 2 more. Things are getting better, but we still need to test the bottom.

  2. Latesha Dekok Says:

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