26 May 2010

Inter-bank lending rate at 10-month high

12:28 pm on 26 May 2010

The cost of inter-bank lending is at its highest level since July last year, stoking fears of another credit crunch.

The Libor rate, which is the interest rate at which banks lend to one-another, has reached a 10-month high, due to fears about the European debt crisis. It has doubled in the last three months.

Some analysts have likened the sharp rise to the start of a credit squeeze during the credit crisis that led to the demise of the investment bank Lehman Brothers in 2008.

Rabobank market strategist Jeremy Stretch says the European debt crisis has meant that banks are now increasingly wary of lending to each other, especially to European banks.

The three-month dollar Libor rate is currently at 0.536%.