RBS EURO WEEKLY: Slowdown even if credit crisis abates

Inter-bank rates declining, but still high:

At the end of 2007, concerns over rising inter-bank rates and end-year funding requirements prompted a concerted injection of liquidity by central banks. Despite the ECB taking arguably the most decisive remedial action, the 3 month spread over the refi rate is still 64bp, higher than at the end of October when spreads appeared to be converging back to more normal levels. So while there has been a clear improvement compared to December, the situation has not normalised. The next few weeks will help assess whether the inter-bank market returns to normal, especially once extra liquidity is out of the system.