Interbank lending rates drop further

The cost of three-month dollar loans between banks fell to a new record low Monday in a further sign that credit markets are recovering after being paralyzed during the financial crisis. A gradual rise in stock markets and more stable economic indicators have pushed many investors to believe the worst of the global financial and economic downturn is over. The British Bankers' Association said the rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — fell to 0.79 percent from 0.83 percent Friday, and remains at the lowest levels since such rates were first compiled in the mid-1980s. It has been falling consistently for the past month. Meanwhile, the equivalent rate for three-month loans in euros — known as the European Interbank Offered Rate, or Euribor — fell 0.01 of a point to 1.25 percent. Interbank lending rates are important for the wider economy because they determine the cost of loans to households and businesses. They shot higher during the financial crisis but have been edging lower in the wake of huge efforts by governments and central banks to get banks to lend once again. Despite the improvements, interbank lending rates are still relatively high. Before the financial crisis, they were only a few tenths of a percentage above the base rates set by central banks — 0-0.25 percent in the U.S., 1.0 percent in the euro zone and 0.5 percent in Britain.