David Whittaker, Managing Director says: “From a high point some two weeks ago when 3 month LIBOR reached a high point of 6.35% there is finally some sign of downward movement and thereby a suggestion of improving market liquidity. Initially LIBOR didn't respond when Base Rate was cut to 4.5% on 8 October and we awaited the US Congress agreeing to the revised Federal Reserve bail-out plan of $700Bn.
Finally there have been a number of downward movements of several basis points per day and 3 month LIBOR has now reached 6.085% which is still a long way from alignment with Base Rate of 4.5% but this is evidence of money movement.
The next hurdle for the market will come if the Bank of England decides to reduce Base Rate further before Christmas on the evidence of deflationary pressure with LIBOR in the region of 5.5% to 6%. This not only devalues the linkage between LIBOR and Base Rate but continues to leave lenders with loan books linked to Base Rate facing a reduced margin from which to manage their loan portfolios.
This still impacts product pricing and we await new lender products as they continue to grapple with unsure money markets. The silver lining is that SWAP rates are easing and this should lead to well priced fixed rate programmes in the near future as the money markets recognise that Base Rate will continue to be reduced into 2009.”
