By Vidya Ranganathan and Chikako Mogi
SINGAPORE/TOKYO (Reuters) - Japan, Australia and India pumped $33 billion (18.5 billion pounds) into money markets on Wednesday as a U.S. government bailout of insurer AIG did little to ease a funding squeeze triggered by the crisis engulfing Wall Street.
Across Asia, central banks were bracing for market turmoil.
The Bank of Korea warned that foreign funds would keep flowing out of the domestic bond market. India added an extra money market operation to improve banks' access to funds while Taiwan allowed banks to lend a larger proportion of their deposits to try to support its currency and stock markets.
On Wednesday, Asian stocks and the dollar rallied on news that the global financial system would be spared the collapse of an insurance giant that operates in 130 countries, but cash remained tight in money markets with no end in sight to the 13-month old credit crisis.
Overnight dollar funds were quoted at 7.5 percent in Asia, compared with the Federal Reserve's 2 percent target rate. Dealers in Singapore said dollar funds traded as high as 8.5 percent, down from 10 percent late on Tuesday.
"The market is still short dollars. Guys here indicate all are scrambling for dollars," said Suresh Kumar Ramanathan, head of currency and rates strategy at CIMB Investment Bank in Kuala Lumpur.
Lending between banks nearly seized up this week after the global credit crisis pushed Lehman Brothers to seek bankruptcy protection, Merrill Lynch into the arms of Bank of America and insurer American International Group to the brink of collapse -- all during one tumultuous weekend.
Australia's central bank supplied the banking system with extra cash for the third day running, more than doubling the previous day's injection to A$4.285 billion (1.91 billion pounds), which was nearly twice the market's estimated cash need.
STEADY RATES
Bank of Japan pumped 3 trillion yen ($28.58 billion) into the market in two moves, matching a record from March 31, after overnight rates jumped above 0.7 percent, 20 basis points above the central bank's target rate.
"Funding tightness is worse than yesterday, and bidding by foreign banks and securities firms stands out," said a money market dealer at a big Japan bank. The Bank of Japan kept its benchmark rate unchanged just as the Fed did on Tuesday.
The Federal Reserve, which supplied an $85 billion bridge loan to rescue AIG, disappointed investors who had bet that it would follow its injection of emergency funds with an interest rate cut.
"The degree of confidence among participants in the market is at a low level. Cutting the cost of money -- like if the Fed had cut last night -- is not necessarily the solution," said Patrick Bennett, Asia currency and rates strategist at Societe Generale in Hong Kong. "What they need to do is bring confidence back into the market."
Neither markets nor policymakers showed much signs of that yet.
Bank of Korea Governor Lee Seong-tae said the credit crisis triggered last year by U.S. mortgage defaults would drag on and hurt the global economy. "We need to prepare for potential foreign fund outflow from the bond markets in the medium term," he said.
Capital has been fleeing emerging markets as investors stung by the upheaval on Wall Street shun risky assets. The Bank of Korea has spent more than $30 billion this year to support the won, which has tumbled 17 percent in 2008 against the dollar.
India's central bank has sprung regularly to the rupee's defence, buying it in the currency market and exacerbating a shortage of local currency. After the rupee's biggest one-day fall in a decade on Tuesday, the central bank said it would make it easier for banks to get cash. On Wednesday, it injected 47.36 billion rupees (573 million pounds) into the banking system through the first of its daily refinance tenders.
Taiwan's central bank also made lending easier by lowering the ratio of time deposits banks must keep in reserve to 5.0 percent from 5.75 percent.
In Australia, the spread between Australian three-month bank bill rates and three-month overnight index swap rates remained around the widest in five months at 60 basis points.
Bank bill/swap spreads are seen as an indication of banks' willingness to lend to one another, with a wider spread suggesting tougher lending conditions.
Source Reuters
SINGAPORE/TOKYO (Reuters) - Japan, Australia and India pumped $33 billion (18.5 billion pounds) into money markets on Wednesday as a U.S. government bailout of insurer AIG did little to ease a funding squeeze triggered by the crisis engulfing Wall Street.
Across Asia, central banks were bracing for market turmoil.
The Bank of Korea warned that foreign funds would keep flowing out of the domestic bond market. India added an extra money market operation to improve banks' access to funds while Taiwan allowed banks to lend a larger proportion of their deposits to try to support its currency and stock markets.
On Wednesday, Asian stocks and the dollar rallied on news that the global financial system would be spared the collapse of an insurance giant that operates in 130 countries, but cash remained tight in money markets with no end in sight to the 13-month old credit crisis.
Overnight dollar funds were quoted at 7.5 percent in Asia, compared with the Federal Reserve's 2 percent target rate. Dealers in Singapore said dollar funds traded as high as 8.5 percent, down from 10 percent late on Tuesday.
"The market is still short dollars. Guys here indicate all are scrambling for dollars," said Suresh Kumar Ramanathan, head of currency and rates strategy at CIMB Investment Bank in Kuala Lumpur.
Lending between banks nearly seized up this week after the global credit crisis pushed Lehman Brothers to seek bankruptcy protection, Merrill Lynch into the arms of Bank of America and insurer American International Group to the brink of collapse -- all during one tumultuous weekend.
Australia's central bank supplied the banking system with extra cash for the third day running, more than doubling the previous day's injection to A$4.285 billion (1.91 billion pounds), which was nearly twice the market's estimated cash need.
STEADY RATES
Bank of Japan pumped 3 trillion yen ($28.58 billion) into the market in two moves, matching a record from March 31, after overnight rates jumped above 0.7 percent, 20 basis points above the central bank's target rate.
"Funding tightness is worse than yesterday, and bidding by foreign banks and securities firms stands out," said a money market dealer at a big Japan bank. The Bank of Japan kept its benchmark rate unchanged just as the Fed did on Tuesday.
The Federal Reserve, which supplied an $85 billion bridge loan to rescue AIG, disappointed investors who had bet that it would follow its injection of emergency funds with an interest rate cut.
"The degree of confidence among participants in the market is at a low level. Cutting the cost of money -- like if the Fed had cut last night -- is not necessarily the solution," said Patrick Bennett, Asia currency and rates strategist at Societe Generale in Hong Kong. "What they need to do is bring confidence back into the market."
Neither markets nor policymakers showed much signs of that yet.
Bank of Korea Governor Lee Seong-tae said the credit crisis triggered last year by U.S. mortgage defaults would drag on and hurt the global economy. "We need to prepare for potential foreign fund outflow from the bond markets in the medium term," he said.
Capital has been fleeing emerging markets as investors stung by the upheaval on Wall Street shun risky assets. The Bank of Korea has spent more than $30 billion this year to support the won, which has tumbled 17 percent in 2008 against the dollar.
India's central bank has sprung regularly to the rupee's defence, buying it in the currency market and exacerbating a shortage of local currency. After the rupee's biggest one-day fall in a decade on Tuesday, the central bank said it would make it easier for banks to get cash. On Wednesday, it injected 47.36 billion rupees (573 million pounds) into the banking system through the first of its daily refinance tenders.
Taiwan's central bank also made lending easier by lowering the ratio of time deposits banks must keep in reserve to 5.0 percent from 5.75 percent.
In Australia, the spread between Australian three-month bank bill rates and three-month overnight index swap rates remained around the widest in five months at 60 basis points.
Bank bill/swap spreads are seen as an indication of banks' willingness to lend to one another, with a wider spread suggesting tougher lending conditions.
Source Reuters
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