The Pakistani currency is facing the horrible devaluation. The Govt has been failed completly in controlling the devaluation of Pak Rupee. The investment outflow continues. The currency dealer and money exchangers are also playing role in outflow of money.
The State Bank of Pakistan has disbursed some 25 million dollars at the notional rate of Rs 80 to the exchange companies aimed at stopping free fall of the rupee. However, no positive impact was witnessed on Friday, as once again the PKR lost 50 paisa against the dollar to close at Rs 80.70 in the open market, Business Recorder has learnt.
Although, on Thursday the central bank intervention had dealt a positive impact on the currency market and the rupee recovered some 25 paisa in the interbank and some 30 paisa in the open currency market. On Friday once again the dollar demand surged in the open currency market as the general public made huge buying of dollar amid strong rumours of banks' defaults. But, the interbank market remained stable due to the slow activity.
Sources said that exchange companies are taking full advantage of the SBP's offer to get dollar at a notional rate of Rs 80 to meet customers' requirements and during the last two days exchange companies acquired some 25 million dollars from the central bank.
"We have acquired some 10 million dollars on Thursday from the central bank, while on Friday about 15 million dollars were also taken to overcome the dollar shortage in the open currency market," said Munaf Kalia, general secretary of Exchange Companies of Pakistan.
He said that the SBP has assured full logistic support to maintain the dollar at a reasonable rate and it is expected that more positive results would be seen in the next few days. He said that the open currency market is still facing huge demand of the dollar, therefore some pressure was witnessed on Friday and the dollar closed at Rs 80.30 with a gain of 10 paisa.
However, market sources said that on Friday the rupee further depreciated, losing 50 paisa against the dollar to close at Rs 80.70 despite the SBP intervention. Sources said that Lahore and Peshawar currency markets see more demand of the dollar and in these markets the dollar was sold at Rs 81 on Friday and if the supply would not improve, it would go up further.
Munaf Kalia said that Lahore and Peshawar markets have huge demand, which would be met with the help of the SBP. He indicated that exchange companies would acquire more dollars on Saturday from the central bank. He requested the general public not to hold dollars, as its price would soon decline and they can suffer huge losses.
11-10-2008
Saturday, October 11, 2008
Stock Market closure : SECP and KSE to take decision today
A crucial meeting between Securities and Exchange Commission of Pakistan (SECP) and Karachi Stock Exchange (KSE) will be held on Saturday (today) to decide whether the stock market is kept closed for a few days or to take any other step to save the investors from further losses.
The meeting will discuss the proposals of KSE members to cap the CFS rates at 24 percent and to extend the CFS settlement period from 21 days to 25 days. The members proposed to keep close the stock exchange closed for few days if their said proposals are not accepted.
The meeting is being held at the time when many KSE members are in critical condition due to continuous decline in the share prices and lack of liquidity while some of them are nearing a default position.
Sources said that an informal meeting of the KSE members was held here on Friday to discuss the prevailing situation of the stock market. The members discussed various proposals. The lack of liquidity was the main concern for them and they discussed various proposals as to how the situation could be eased.
Later these proposals were also discussed in a meeting between KSE Managing Director Adnan Afridi and National Clearing Company of Pakistan Limited (NCCPL) Chairman Ali Ansari. The Chairman KSE Kamran Mirza also joined the meeting later. According to some sources the CFS was rolled over for one day as borrowers failed to get funds from CFS market on Friday. All the Friday's trading will be merged into the Monday's trading and the settlement will be held on Tuesday.
Prevailing uncertainty and rising lending rates forced the investors to stay on the fences on Friday and the benchmark KSE-100 index remained unchanged at 9,181.35 points level. The prevailing economic conditions coupled with increased CFS rates did not allow the market participants to take fresh positions, analysts said, adding that lack of liquidity remained the main reason behind the dull activity at the share market.
The ready market volumes slightly increased to 1.833 million shares as compared to 1.792 million shares traded a day earlier. The overall market capitalisation declined by Rs 4 billion to Rs 2.841 trillion. Out of the total 70 scrips traded on Friday, 12 closed in positive territory, 10 in negative while 48 remained unchanged.
Nimir Resins was the overall volume leader with 0.618 million shares however it closed at Rs 5.30 without any change. NIB Bank also remained unchanged at Rs 8.45 with 0.268 million shares. Southern Electric gained Re. 0.02 to close at Rs 3.92 with 0.2 million shares. Sitara Energy increased by Re. 0.25 to close at Rs 22.30 with 0.139 million shares. UDL Mod closed at Rs 4.33, up by Re. 0.13 with 0.102 million shares. KESC closed at Rs 3.80 without any change with 77,000 shares.
Gharibwal Cement gained Re. 0.49 to close at Rs 17.99 with 65,000 shares. Pak Elektron increased by Re. 0.45 to close at Rs 37.50 with 56,700 shares. UTP-Large Cap. lost Re. 0.09 to close at Rs 5.50 with 52,000 shares. D.S. Ind Ltd closed at Rs 14.85 without any change with 49,500 shares. National Foods and Shakarganj Mills were top gainers with Rs 3.82 and Re. 0.66 to close at Rs 80.35 and Rs 12.50 respectively while Pak Datacom and Stand Chart Mod were the worst losers with Re. 0.85 and Re. 0.68 to close at Rs 48.25 and Rs 10.50, respectively.
Ahsan Mehanti at Shehzad Chamdia Securities said that investors remained concerned over prevailing capital market crises mainly due to liquidity issues. Falling equity values in the international capital markets, economic crisis, declining rupee value, foreign selling, broker defaults and high lending rates remained chief concerns for the market participants, who opted to remain on sidelines.
The meeting will discuss the proposals of KSE members to cap the CFS rates at 24 percent and to extend the CFS settlement period from 21 days to 25 days. The members proposed to keep close the stock exchange closed for few days if their said proposals are not accepted.
The meeting is being held at the time when many KSE members are in critical condition due to continuous decline in the share prices and lack of liquidity while some of them are nearing a default position.
Sources said that an informal meeting of the KSE members was held here on Friday to discuss the prevailing situation of the stock market. The members discussed various proposals. The lack of liquidity was the main concern for them and they discussed various proposals as to how the situation could be eased.
Later these proposals were also discussed in a meeting between KSE Managing Director Adnan Afridi and National Clearing Company of Pakistan Limited (NCCPL) Chairman Ali Ansari. The Chairman KSE Kamran Mirza also joined the meeting later. According to some sources the CFS was rolled over for one day as borrowers failed to get funds from CFS market on Friday. All the Friday's trading will be merged into the Monday's trading and the settlement will be held on Tuesday.
Prevailing uncertainty and rising lending rates forced the investors to stay on the fences on Friday and the benchmark KSE-100 index remained unchanged at 9,181.35 points level. The prevailing economic conditions coupled with increased CFS rates did not allow the market participants to take fresh positions, analysts said, adding that lack of liquidity remained the main reason behind the dull activity at the share market.
The ready market volumes slightly increased to 1.833 million shares as compared to 1.792 million shares traded a day earlier. The overall market capitalisation declined by Rs 4 billion to Rs 2.841 trillion. Out of the total 70 scrips traded on Friday, 12 closed in positive territory, 10 in negative while 48 remained unchanged.
Nimir Resins was the overall volume leader with 0.618 million shares however it closed at Rs 5.30 without any change. NIB Bank also remained unchanged at Rs 8.45 with 0.268 million shares. Southern Electric gained Re. 0.02 to close at Rs 3.92 with 0.2 million shares. Sitara Energy increased by Re. 0.25 to close at Rs 22.30 with 0.139 million shares. UDL Mod closed at Rs 4.33, up by Re. 0.13 with 0.102 million shares. KESC closed at Rs 3.80 without any change with 77,000 shares.
Gharibwal Cement gained Re. 0.49 to close at Rs 17.99 with 65,000 shares. Pak Elektron increased by Re. 0.45 to close at Rs 37.50 with 56,700 shares. UTP-Large Cap. lost Re. 0.09 to close at Rs 5.50 with 52,000 shares. D.S. Ind Ltd closed at Rs 14.85 without any change with 49,500 shares. National Foods and Shakarganj Mills were top gainers with Rs 3.82 and Re. 0.66 to close at Rs 80.35 and Rs 12.50 respectively while Pak Datacom and Stand Chart Mod were the worst losers with Re. 0.85 and Re. 0.68 to close at Rs 48.25 and Rs 10.50, respectively.
Ahsan Mehanti at Shehzad Chamdia Securities said that investors remained concerned over prevailing capital market crises mainly due to liquidity issues. Falling equity values in the international capital markets, economic crisis, declining rupee value, foreign selling, broker defaults and high lending rates remained chief concerns for the market participants, who opted to remain on sidelines.
The high Inflation rate in Pakistan
Pakistan current account deficit is more than double of India's, which is an emerging economy in the region whereas the position of Bangladesh is not alarming in the South Asian region.
According to IMF World Economic Outlook 2008, the current account balance of Pakistan is -8.7 per cent of its GDP in 2008 as compared to -3.9 per cent in 2006 that clearly shows a decline of 4.8 per cent in GDP growth.
The report has projected -6.4 per cent current account balance of GDP growth of Pakistan in 2009 as compared to India that is projected to have -3.1 per cent whereas Bangladesh's current account balance is 0.9 per cent.
Total current account balance of South Asia in 2008 remained -3.3 per cent that is 1.9 per cent less than that of -1.9 per cent in 2006. Similarly, the report shows that the projected current account balance of GDP growth in the region will remain -3.3 percent in 2009.
It is worthy of mentioning that the report has projected four times higher consumer prices in Pakistan than India and more than twice of Bangladesh in 2009. The inflation rate in Pakistan, according to the report, is projected to shoot up to 23 per cent in 2009 as compared to 12 per cent in 2008 whereas the inflation rate was just 7.9 per cent in 2006. This shows an increase of 15.1 per cent in inflation rate in 2009 as compared to that of 2006.
The inflation rate of India in 2009 is expected to be 8.8 per cent that is 16.3 per cent less than of Pakistan's while Bangladesh is expected to have 10 per cent high inflation that is 13 per cent less than of Pakistan's. The average inflation for 2009 in South Asia is projected at 8.8 per cent.
The report shows that Pakistan's economic growth rate may reduce to 3.5 per cent in 2009 as compared to 5.8 per cent in 2008. On the other hand, India and Bangladesh are expected to have 6.9 per cent, 5.6 per cent GDP rate respectively. Earlier, a recent report issued by the Asian Development Bank (ADB) showed that Pakistan GDP growth is expected to decrease to 4.5 per cent in the current fiscal year against 5.8 per cent achieved in the last fiscal, as, according to the report, the country would continue to face the deteriorated state of economic fundamentals and inflationary pressures.
The inflation measured through SPI surged by 30.67 percent during the week ending on October 9 over the same period of last year owing to increase in the prices of 20 essential commodities, according to the Federal Bureau of Statistics.
The Sensitive Price Indicator (SPI) released by the FBS on Friday shows that dearness of the lowest income group up to Rs 3,000 has registered increase of 2.15 percent over the previous week. The dearness for the same group was 33.04 percent more as compared to the same period of last year. The weekly SPI has been computed with base 2000-2001=100 covering 17 urban centres and 53 essential items for all income groups and combined.
The SPI for the combined group registered increase of 1.48 percent by moving up from 210.90 in the previous week to 214.03 in the week under review. The SPI for the groups falling in the income brackets of 3001-5000, 5001-12000 and above 12000 witnessed increase of 31.77, 31.25 and 30.67 per cent respectively over the same period of last year.
During the week under review average prices of 14 items registered decrease, while that of 20 items increase with the remaining 19 items' prices unchanged. The items which recorded decrease in their average prices during the week under review included, tomatoes, bananas, onions, vegetable ghee (loose), red chillies, moong pulse (washed), rice irri-6, LPG( 11-kg cylinder.), gram pulse (washed), mustard oil, rice Basmati (broken), lawn, mash pulse (washed) and masoor pulse (washed).
The items which registered increase in their prices included, wheat flour (average quality), wheat (average quality), sugar, egg hen (farm), milk powdered (Nido), chicken (farm), tea (prepared), gur, potatoes, garlic, bread plain (mid size), beef, coarse latha, mutton, milk (fresh), cooked beef, shirting, firewood, kerosene and curd.
The items with no change in their average prices during the week under review included, vegetable ghee (tin), cooking oil (tin), salt (powdered), tea (packet), cooked dal, cigarettes, voil (printed), sandal gents (Bata), sandal ladies (Bata), chappal spng (Bata), electricity bulb (60wats), match box, washing soap (Nylon), bath soap (Lifebuoy), gas charges (up to 3.3719 MMBTU), electricity charges, (1-100 unit), petrol, diesel and telephone local call.
According to IMF World Economic Outlook 2008, the current account balance of Pakistan is -8.7 per cent of its GDP in 2008 as compared to -3.9 per cent in 2006 that clearly shows a decline of 4.8 per cent in GDP growth.
The report has projected -6.4 per cent current account balance of GDP growth of Pakistan in 2009 as compared to India that is projected to have -3.1 per cent whereas Bangladesh's current account balance is 0.9 per cent.
Total current account balance of South Asia in 2008 remained -3.3 per cent that is 1.9 per cent less than that of -1.9 per cent in 2006. Similarly, the report shows that the projected current account balance of GDP growth in the region will remain -3.3 percent in 2009.
It is worthy of mentioning that the report has projected four times higher consumer prices in Pakistan than India and more than twice of Bangladesh in 2009. The inflation rate in Pakistan, according to the report, is projected to shoot up to 23 per cent in 2009 as compared to 12 per cent in 2008 whereas the inflation rate was just 7.9 per cent in 2006. This shows an increase of 15.1 per cent in inflation rate in 2009 as compared to that of 2006.
The inflation rate of India in 2009 is expected to be 8.8 per cent that is 16.3 per cent less than of Pakistan's while Bangladesh is expected to have 10 per cent high inflation that is 13 per cent less than of Pakistan's. The average inflation for 2009 in South Asia is projected at 8.8 per cent.
The report shows that Pakistan's economic growth rate may reduce to 3.5 per cent in 2009 as compared to 5.8 per cent in 2008. On the other hand, India and Bangladesh are expected to have 6.9 per cent, 5.6 per cent GDP rate respectively. Earlier, a recent report issued by the Asian Development Bank (ADB) showed that Pakistan GDP growth is expected to decrease to 4.5 per cent in the current fiscal year against 5.8 per cent achieved in the last fiscal, as, according to the report, the country would continue to face the deteriorated state of economic fundamentals and inflationary pressures.
The inflation measured through SPI surged by 30.67 percent during the week ending on October 9 over the same period of last year owing to increase in the prices of 20 essential commodities, according to the Federal Bureau of Statistics.
The Sensitive Price Indicator (SPI) released by the FBS on Friday shows that dearness of the lowest income group up to Rs 3,000 has registered increase of 2.15 percent over the previous week. The dearness for the same group was 33.04 percent more as compared to the same period of last year. The weekly SPI has been computed with base 2000-2001=100 covering 17 urban centres and 53 essential items for all income groups and combined.
The SPI for the combined group registered increase of 1.48 percent by moving up from 210.90 in the previous week to 214.03 in the week under review. The SPI for the groups falling in the income brackets of 3001-5000, 5001-12000 and above 12000 witnessed increase of 31.77, 31.25 and 30.67 per cent respectively over the same period of last year.
During the week under review average prices of 14 items registered decrease, while that of 20 items increase with the remaining 19 items' prices unchanged. The items which recorded decrease in their average prices during the week under review included, tomatoes, bananas, onions, vegetable ghee (loose), red chillies, moong pulse (washed), rice irri-6, LPG( 11-kg cylinder.), gram pulse (washed), mustard oil, rice Basmati (broken), lawn, mash pulse (washed) and masoor pulse (washed).
The items which registered increase in their prices included, wheat flour (average quality), wheat (average quality), sugar, egg hen (farm), milk powdered (Nido), chicken (farm), tea (prepared), gur, potatoes, garlic, bread plain (mid size), beef, coarse latha, mutton, milk (fresh), cooked beef, shirting, firewood, kerosene and curd.
The items with no change in their average prices during the week under review included, vegetable ghee (tin), cooking oil (tin), salt (powdered), tea (packet), cooked dal, cigarettes, voil (printed), sandal gents (Bata), sandal ladies (Bata), chappal spng (Bata), electricity bulb (60wats), match box, washing soap (Nylon), bath soap (Lifebuoy), gas charges (up to 3.3719 MMBTU), electricity charges, (1-100 unit), petrol, diesel and telephone local call.
Pakistan's three months trade deficit has widened to $5.549 billion
Pakistan's three months trade deficit has widened to $5.549 billion, registering an increase of 52.65 percent over the same period of last year, according to the Federal Bureau of Statistics. Trade figures released by the FBS on Friday show that Pakistan imported $10.818 billion goods during July-September 2008 against the total exports of $5.269 billion.
The trade deficit during the same period of last year was $3.635 billion but it increased to $5.549 billion this year. There has been an increase of 62.13 percent in trade deficit in September 2008 over the same period of last year with trade gap widening from $1.250 billion last September to $2.027 billion this September. Pakistan imports stood at $3.806 billion in September 2008 against exports of merely $1.77 billion.
Pakistan needs to do something on a war footing to bridge the whooping trade deficit that has brought under enormous pressure, its foreign exchange reserves as the mounting trade deficit is posing great threat to the economy, analysts said.
There has been a little positive sign with exports increasing by 12.34 percent in September over the previous month that is required to be further capitalized in the months ahead to reduce the gap. The exports in September increased to $1.77 billion from $1.584 billion in August. The increase in imports was marginal during September 2008 over the previous month with figures showing total imports of $3.806 billion in September compared to $3.461 billion in August 2008.
A comparison between September 2008 over the same month of last year shows an increase of 62.13 percent in trade deficit with gap going up from $1.250 billion in September last year to $2.027 billion this September. However, there has been an increase of 19.88 percent in export as compared to last year.
The exports have increased to $1.779 billion in September 2008 over $1.484 billion of the same month of previous year. At the same time imports registered an increase of 39.20 percent in September 2008 over the same month of last year going up from $2.734 billion last September to $3.806 billion this September.
Central banks pumped huge amounts of short-term funds into paralysed money markets on Friday as the world's attention turned to Washington where global finance leaders meet this weekend to discuss the deepening crisis.
Investors across all asset classes will look to Group of Seven finance ministers and central bankers, and International Monetary Fund for co-ordinated action to help arrest the panic that has frozen money markets and sent stock markets into a tailspin. IMF chief Dominic Strauss-Kahn on Friday called for a temporary guarantee of all interbank deposits.
"This means not only retail bank deposits but probably also interbank and money market deposits, so that activity may restart in these key markets," Strauss-Kahn told a conference in Washington. "Of course, such a step should be temporary and include safeguards such as heightened supervision and limits on deposit rates offered," he added.
Strauss-Kahn's comments followed another day of turmoil on global financial markets and virtual paralysis on money markets, which had prompted yet more liquidity provisions from monetary authorities around the world. The European Central Bank and Bank of England injected a combined $132 billion of one-day and one-week dollar liquidity into the European banking system.
In Asia, Singapore cut interest rates for the first time since 2003 and the Bank of Japan injected a record 4.5 trillion yen ($45.5 billion) in same-day funding. Investors dumped government bonds and scrambled for cash as insurer Yamato Life went bankrupt, selling that was also mirrored in European and US government bond markets in the scramble for cash. The Reserve Bank of Australia injected A$2.63 billion ($1.8 billion) into the banking system, adding about A$790 million more than the estimated need in an effort to ease funding pressures.
"With money markets disintegrating, the financial system is at risk. The deleveraging we thought should take place over years looks set to be brought about by dysfunctional funding markets in a matter of weeks." said Dresdner Kleinwort in a note to clients on Friday.
IN UNISON: Despite the myriad measures from individual central banks and governments, the deepening dislocation - in equity, credit, interbank, fixed income and currency markets - is increasing the clamour for co-ordinated action.
"Most euro zone governments have relied mostly on political promises of rescue if needed (but) we doubt stability will be restored until these promises are converted into concrete actions, preferably with an interbank guarantee," Goldman Sachs' European economists wrote in a note on Friday.
At the British Bankers Association's daily fixing of London interbank offered rates (Libor) on Friday, overnight sterling rates jumped, as dealers reported some UK banks faced a shortage of cash.
Sterling overnight Libor was fixed almost 40 basis points higher at 5.81250 percent, more than 140 basis points above the Bank of England's new target rate of 4.5 percent. This contrasted with overnight dollar and euro rates, which both fell closer to central banks' new, lower targets following the co-ordinated global cut in interest rates earlier this week.
Three-month euro Libor also fell but was among the few signs aggressive government and central bank action to unfreeze money markets may be working. Otherwise, the Libor fixings showed banks' lending rates to each other - for the limited lending being conducted - remain high.
The sense of distrust and fear in money markets was reflected by the latest data from the ECB that showed how much euro zone banks deposited at the central bank on Thursday rather than lend out.
Euro zone banks deposited 64.364 billion euros of overnight funds at the ECB, up from 39.831 billion euros the previous day. The BoE, meanwhile, said it will offer 40 billion pounds in a three-month repo operation next week, and will conduct two $30 billion auctions a week until further notice.
In the United States, banks borrowed a record $420 billion per day from the Federal Reserve in recent days - greater than the size of the economy of Belgium - as financial institutions continued to rely on the lender of last resort. High interbank lending rates have stymied funds from flowing into other parts of the money markets such as commercial paper, which continued to contract despite Federal Reserve support.
While lower overnight interest rates will prevent further deterioration in the global credit crisis for now, elevated term borrowing costs will hurt cash-strapped companies and consumers in the long run. That's why some sort of interbank guarantee from the G7 this weekend might be the only way to get the money market wheels turning again.
"Given the trillions of dollars of credit that has already been extended by the Treasury and the Fed, this action would appear to involve a manageable price tag - especially since it directly addresses the most immediate problem plaguing the credit markets and overall economy," said David Greenlaw, economist at Morgan Stanley.
The trade deficit during the same period of last year was $3.635 billion but it increased to $5.549 billion this year. There has been an increase of 62.13 percent in trade deficit in September 2008 over the same period of last year with trade gap widening from $1.250 billion last September to $2.027 billion this September. Pakistan imports stood at $3.806 billion in September 2008 against exports of merely $1.77 billion.
Pakistan needs to do something on a war footing to bridge the whooping trade deficit that has brought under enormous pressure, its foreign exchange reserves as the mounting trade deficit is posing great threat to the economy, analysts said.
There has been a little positive sign with exports increasing by 12.34 percent in September over the previous month that is required to be further capitalized in the months ahead to reduce the gap. The exports in September increased to $1.77 billion from $1.584 billion in August. The increase in imports was marginal during September 2008 over the previous month with figures showing total imports of $3.806 billion in September compared to $3.461 billion in August 2008.
A comparison between September 2008 over the same month of last year shows an increase of 62.13 percent in trade deficit with gap going up from $1.250 billion in September last year to $2.027 billion this September. However, there has been an increase of 19.88 percent in export as compared to last year.
The exports have increased to $1.779 billion in September 2008 over $1.484 billion of the same month of previous year. At the same time imports registered an increase of 39.20 percent in September 2008 over the same month of last year going up from $2.734 billion last September to $3.806 billion this September.
Central banks pumped huge amounts of short-term funds into paralysed money markets on Friday as the world's attention turned to Washington where global finance leaders meet this weekend to discuss the deepening crisis.
Investors across all asset classes will look to Group of Seven finance ministers and central bankers, and International Monetary Fund for co-ordinated action to help arrest the panic that has frozen money markets and sent stock markets into a tailspin. IMF chief Dominic Strauss-Kahn on Friday called for a temporary guarantee of all interbank deposits.
"This means not only retail bank deposits but probably also interbank and money market deposits, so that activity may restart in these key markets," Strauss-Kahn told a conference in Washington. "Of course, such a step should be temporary and include safeguards such as heightened supervision and limits on deposit rates offered," he added.
Strauss-Kahn's comments followed another day of turmoil on global financial markets and virtual paralysis on money markets, which had prompted yet more liquidity provisions from monetary authorities around the world. The European Central Bank and Bank of England injected a combined $132 billion of one-day and one-week dollar liquidity into the European banking system.
In Asia, Singapore cut interest rates for the first time since 2003 and the Bank of Japan injected a record 4.5 trillion yen ($45.5 billion) in same-day funding. Investors dumped government bonds and scrambled for cash as insurer Yamato Life went bankrupt, selling that was also mirrored in European and US government bond markets in the scramble for cash. The Reserve Bank of Australia injected A$2.63 billion ($1.8 billion) into the banking system, adding about A$790 million more than the estimated need in an effort to ease funding pressures.
"With money markets disintegrating, the financial system is at risk. The deleveraging we thought should take place over years looks set to be brought about by dysfunctional funding markets in a matter of weeks." said Dresdner Kleinwort in a note to clients on Friday.
IN UNISON: Despite the myriad measures from individual central banks and governments, the deepening dislocation - in equity, credit, interbank, fixed income and currency markets - is increasing the clamour for co-ordinated action.
"Most euro zone governments have relied mostly on political promises of rescue if needed (but) we doubt stability will be restored until these promises are converted into concrete actions, preferably with an interbank guarantee," Goldman Sachs' European economists wrote in a note on Friday.
At the British Bankers Association's daily fixing of London interbank offered rates (Libor) on Friday, overnight sterling rates jumped, as dealers reported some UK banks faced a shortage of cash.
Sterling overnight Libor was fixed almost 40 basis points higher at 5.81250 percent, more than 140 basis points above the Bank of England's new target rate of 4.5 percent. This contrasted with overnight dollar and euro rates, which both fell closer to central banks' new, lower targets following the co-ordinated global cut in interest rates earlier this week.
Three-month euro Libor also fell but was among the few signs aggressive government and central bank action to unfreeze money markets may be working. Otherwise, the Libor fixings showed banks' lending rates to each other - for the limited lending being conducted - remain high.
The sense of distrust and fear in money markets was reflected by the latest data from the ECB that showed how much euro zone banks deposited at the central bank on Thursday rather than lend out.
Euro zone banks deposited 64.364 billion euros of overnight funds at the ECB, up from 39.831 billion euros the previous day. The BoE, meanwhile, said it will offer 40 billion pounds in a three-month repo operation next week, and will conduct two $30 billion auctions a week until further notice.
In the United States, banks borrowed a record $420 billion per day from the Federal Reserve in recent days - greater than the size of the economy of Belgium - as financial institutions continued to rely on the lender of last resort. High interbank lending rates have stymied funds from flowing into other parts of the money markets such as commercial paper, which continued to contract despite Federal Reserve support.
While lower overnight interest rates will prevent further deterioration in the global credit crisis for now, elevated term borrowing costs will hurt cash-strapped companies and consumers in the long run. That's why some sort of interbank guarantee from the G7 this weekend might be the only way to get the money market wheels turning again.
"Given the trillions of dollars of credit that has already been extended by the Treasury and the Fed, this action would appear to involve a manageable price tag - especially since it directly addresses the most immediate problem plaguing the credit markets and overall economy," said David Greenlaw, economist at Morgan Stanley.
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