Central banks take action to calm markets

”]Five central banks make more dollars available to eurozone banks as IMF chief warns of “dangerous” new economic phase.

Five central banks have acted to offer three-month US dollar loans to mainly European commercial banks in order to prevent money markets from freezing up because of the continent’s sovereign debt crisis.

The European Central Bank (ECB) said on Thursday that it would hold three fixed-rate operations between October and December to offer banks as many dollars as they needed, in order to ease any funding crunch in the year-end period.

The ECB said it was acting in co-ordination with the US Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank.

The announcement sharply boosted the euro and European bank shares, with France’s BNP Paribas jumping as much as 22 per cent.

The move came as the managing director of the International Monetary Fund (IMF) warned of a “dangerous” new economic phase during a speech in Washington.

Christine Lagarde said “uncertainty hovers over sovereigns across the advanced economies, banks in Europe, and households in the United States, without collective, bold, action, there is a real risk that the major economies slip back instead of moving forward”.

Some European banks have struggled to obtain dollar funding in recent months as lenders have become increasingly nervous about the eurozone debt crisis and the global economic slowdown.

Central banks carried out similar action to boost the liquidity of commercial lenders at the height of the financial crisis in 2008.

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