NEW YORK, Sept 13 A gauge on what banks charge
each other to borrow dollars for three months fell on Tuesday
from its highest level in more than seven years, following
remarks by Federal Reserve Governor Lael Brainard.
In her speech on Monday to the Chicago Council on Global
Affairs, Brainard cautioned against raising interest rates too
quickly due to potential weakness in the labor market and risks
of economic weakness overseas.
"Today's new normal counsels prudence in the removal of
policy accommodation," she said.
Brainard's comments came ahead of the Fed's policy meeting
next Tuesday and Wednesday. Some analysts had raised the
probability she might signal the central bank would increase
interest rates at the upcoming meeting.
The London interbank offered rate on three-month dollars
, a benchmark for more than $300 trillion worth of
financial products worldwide, declined to 0.85028 percent from
0.85578 percent on Monday.
Libor has risen 37 percent since late June as U.S. money
market funds have scaled back their holdings of short-term bank
debt in advance of new regulations. On Oct. 14, government-only
money funds will become exempt from rules on share value and
fees from the U.S. Securities and Exchange Commission.
Since July, some U.S. prime money market funds, which had
been major holders of commercial paper and other bank debt, have
changed over to funds that hold only government securities.
Three-month Libor's premium versus the three-month overnight
indexed rate, which measures traders' expectations
on bank borrowing cost in three months, eased from its widest
level since early 2012, according to Reuters data.
This spread between three-month Libor and three-month OIS
was last at 0.430 percent, compared with 0.434 percent on
Meanwhile, Libor for other maturities were broadly lower.
One-month Libor slipped to 0.52428 percent from
Monday's 0.52772 percent, which was the highest since March
Six-month Libor increased to 1.24894 percent
from Monday's 1.25528 percent, which was the highest since June
(Reporting by Richard Leong; Editing by Will Dunham)