Monetary easing overwhelmed by credit market freeze

By Simon Rabinovitch

BEIJING (Reuters) - Monetary easing in Asia and massive U.S. bank borrowing from the Federal Reserve did little to calm the panic in credit markets at the epicentre of the global financial crisis.

Overnight interbank borrowing rates eased after central banks around the world cut interest rates earlier this week, but they held well above target rates in Asian trade on Friday. Longer-term funding costs also remained stubbornly high despite the unprecedented act of global coordination.

Analysts say that at the heart of the money markets squeeze is a crisis of confidence and fears of bank failures, concerns that central bank cash injections and rate cuts can only partially assuage.

"We're not seeing any relief in term LIBOR (London Interbank Offered Rate) fixings, which tells us that the rate cut has exclusively impacted on the overnight market, but it hasn't touched the LIBOR market at all," said BNP Paribas rate strategist Alessandro Tentori.

"And that's not a very good sign," he added.

Singapore eased its monetary policy for the first time since 2003, declaring that it would slow the appreciation of the Singapore dollar, which is managed against a basket of currencies.

The monetary loosening will cushion the impact of the global crisis, but Singapore's export-dependent economy, officially in recession after two quarters of contraction, could keep shrinking well into 2009, analysts said.

India's central bank cut banks' cash reserve requirement by 1.5 percentage points to ease a cash squeeze that drove overnight rates above 20 percent on Friday, their highest since early 2007.