Reply #64: ECB lengthens liquidity injection ops to 6 months

[Ghost Dog]

FRANKFURT, March 28 (Reuters) - The European Central Bank lengthened its refinancing operations for banks to six months for the first time ever in a fresh bid to calm the jittery money market and keep interest rate and liquidity policy separate.

So far the ECB has only been offering refinancing of up to 3 months, to inject liquidity into the market where banks have become reluctant to lend to each other in the wake of the U.S. sub-prime mortgage market crisis.

"The previous measures have not fully worked," said Christoph Balz, ECB economist at Commerzbank.

"If banks have funds available for a longer time, this could help to stabilise the market. If there is more liquidity just overnight, this does not help the market, since it will be gone the next day. But with 6 months maturity it is easier for banks to operate," he said.

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Despite earlier operations six-month EURIBOR rates <EURIBOR6MD=> have been rising steeply as a result of the financial market turmoil. On February 8 they stood at 4.29 percent but they were at 4.733 percent on Friday .

/Continued... http://www.reuters.com/article/marketsNews/idUKL2859767020080328?rpc=44