Banks Snap Up Pounds 15bn as Retail Sales Fall; IN ASSOCIATION WITH Rensburg Sheppards Investment Management Market Comment Shops Gloom Drives Hopes of New Interest Rate Cut Market Watch
Byline: BY ALEX TURNER
BANKS once again snapped up all of the wholesale bank funding offered by the Bank of England in its latest auction held yesterday.
The central bank offered pounds 15bn and received offers for pounds 15.15bn from lenders who are suffering from the credit crunch.
However, unlike the previous auction last month - when the Bank of England received bids totalling pounds 16.9bn for pounds 10bn of funding - lenders received almost all of the money they were seeking.
The central bank has lifted the funding available to borrow for three months to pounds 15bn this month, with financial institutions still reluctant to lend to each other following the credit crunch. The rate at which banks lend to each other for three months is almost 1% above the Bank's official 5% base rate.
The Bank of England figures showed some financial institutions more in need of the money than others, with the highest bid for the money at a rate of 5.84%, compared with an average of 5.25%.
This is particularly high because the money is to be lent for three months and markets are currently expecting another cut in interest rates to 4.75% by June.
The lowest bidder for the funds, who bid below the Bank's current 5% base rate, received nearly 90% of the cash it demanded.
The identities of those taking part in the Bank's auctions are kept secret to avoid concerns spreading through stock markets.
Banks could bid for maximum of 20%, or pounds 3bn, of the funding on offer.
Central banks across the world have made increasing efforts to address the credit crunch in recent months by making more cash available to banks.
The Bank of England warned of "worsening conditions" in credit markets last week as it cut rates.
The higher borrowing costs have fed into more expensive mortgage deals for many homeowners, despite three rate cuts in five months from the Bank of England.
Prime Minister Gordon Brown yesterday held talks with bank chiefs at Downing Street to urge them to pass on the cuts to hardpressed customers.
And the likelihood of further interest rate cuts has increased this week after March retail sales figures sparked fears over the health of the high street.
The latest figures from the British Retail Consortium (BRC) revealed that like-for-like sales fell by 1. …