ECB allocates €60bn amid easing money market tension

The European Central Bank allocated €60 billion during an exceptional three month refinancing operation marked by easing tensions on eurozone money markets, ECB figures showed on Wednesday.

The operation, which was reserved essentially for mid-sized banks, resulted in an average lending rate of 4.26 per cent and a marginal, or lowest, rate of 4.15 per cent, the ECB said in a statement.

During its last three-month refinancing operation, the average rate was 4.33 per cent and the marginal rate 4.21 per cent, suggesting there was less pressure on banks to borrow ECB funds this time around.

In early February, ECB president Jean-Claude Trichet announced that two exceptional longer-term refinancing operations would be renewed, in addition to regular transactions, to encourage a "normalisation" of eurozone money markets.

They had been marked by rising tension at the end of 2007 as banks became wary of lending to each other amid a persistent credit crunch that followed the collapse of the US market for high-risk, or subprime, mortgages.

Banks were unable to determine how exposed borrowers might be to potentially huge subprime-related losses and were thus more reluctant to lend money among themselves.

But the ECB's most recent refinancing operations, which allow commercial banks to maintain minimum cash requirements for daily operations, suggest that the situation has begun to ease.

Market expectations that the ECB will soon lower its benchmark interest rates have also decreased tension on the money markets. (AFP)