Dollar 3-month LIBOR falls to 5-month low

NEW YORK: A key barometer of interbank borrowing costs for dollars fell to a five-month low on Thursday, signaling greater willingness among banks to lend among themselves at the start of the second quarter.

Bets that the Federal Reserve might ease interest rates to counter a slowing economy have also put downward pressure on wholesale borrowing costs, analysts said.

The London interbank offered rate (LIBOR) to borrow dollars for three months fell to 2.58863%, down 0.9 basis point from Wednesday. It was also the lowest level since 2.58150% on Nov. 1.

LIBOR is the benchmark rate for $200 trillion worth of dollar-denominated financial products, mainly interest rate swaps and floating-rate loans.

In December, LIBOR reached its highest in more than a decade at 2.82375%, propelled by Federal Reserve interest rate increases, rising U.S. government borrowing and a shrinking Fed balance sheet.

Looser lending conditions also helped stabilize the federal funds rate, which is what banks charge each other to borrow excess reserves overnight.

The fed funds rate, which the Fed targets to conduct its monetary policy, averaged at 2.41% for a third day on Wednesday, New York Federal Reserve data released on Thursday showed.

The average or "effective" federal funds rate's premium above what the U.S. central bank pays on the excess reserves (IOER) stayed at 1 basis point.

Last Friday, the spread on the fed funds rate over IOER widened to 3 basis points, the widest premium ever between the two rates.