Asia greases money markets, AIG deal fails to soothe
Japan, Australia and India pumped $33 billion 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 payday advances. 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 Inc 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 ($3.4 billion), which was nearly twice the market’s estimated cash need.
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