–Says Non-Dollar Liquidity Support Can Be Put In Place Quickly

LONDON (MNI) – The Bank of England said today that the introduction
of a network of temporary swap lines between central banks would enable
it to provide sterling to other central banks as required.

It would also allow the BOE to supply Japanese yen, euro, Swiss
francs and Canadian dollars (in addition to the existing operations in
U.S. dollars) as needed.

The BOE said that it would “continue its weekly tenders of U.S.
dollar funding at fixed interest rates each Wednesday until further
notice, with counterparties able to borrow unlimited amounts against
eligible collateral. The rate at which tenders are conducted will be
reduced to OIS+50bps (from OIS+100bps) beginning with the next weekly
tender on Dec 7.

The comments follow the announcement of coordinated central bank
action to lower the price of temporary dollar liquidity swap
arrangements to overnight index swap (OIS) plus 50 bps from plus 100bps
to ease strains in global financial markets and help “foster economic
activity”.

The BOE joined the action along with the Federal Reserve, the
European Central Bank, the Bank of Canada, the Bank of Japan and the
Swiss National Bank.

The central banks said that the new temporary bilateral swap
lines were only a prudent “contingency measure”:

“As a contingency measure, these central banks have also agreed to
establish temporary bilateral liquidity swap arrangements so that
liquidity can be provided in each jurisdiction in any of their
currencies should market conditions so warrant. At present, there is no
need to offer liquidity in non-domestic currencies other than the U.S.
dollar, but the central banks judge it prudent to make the necessary
arrangements so that liquidity support operations could be put into
place quickly should the need arise”.

The central banks said that the swap lines would be available
until 1 February 2013.

Euro-dollar rallied sharply to just over $1.35 from around $1.33 –
a 6-day high as the move boosted risk-on sentiment.

–London Bureau; tel: +442078627492; email: dthomas@marketnews.com

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