Aussie Inter-Bank Lending Easing Up

Post by NeilMc on November 17, 2008 · Under Business News, banking, interest rates · Comment

The credit crisis may have reached a peak in Australia, as its interbank money market continues to show signs of thawing. The fall in short term money market rates contrasts significantly with that of the US, where large government bailouts of troubled lenders has failed to reduce spreads.

The spread between Aussie three-month bill swap rates and the Overnight Index Swap (OIS) a key indicator of banking funding costs fell to 32 basis point early Monday down from 45 basis points on Friday. At the height of the credit crisis the peak spread was 140 basis points in October, according to data released by leading inter-dealer broker ICAP Australia.

US borrowing costs have also dramatically fallen from their peak, though the pace at which they have fallen has been much slower, with the spread between the three-month US dollar London interbank offered rate and OIS sliding from a peak of 3.60 per cent on October 10 to 1.70 per cent last Friday.

“The signs are that for Australia we are easing and more so than the rest of the world” ICAP’s Mr. Carr told Dow Jones News Wire. “For (Australia), the issue of interbank bank lending is easing off a lot quicker, than the US or Britain” Mr. Carr said, adding that the recovery reflected the strength of the domestic banking sector.

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