Reuters
Asia central banks join bid to calm money markets
Thursday August 9, 11:32 pm ET
By Jeffrey Hodgson and Jan Dahinten

HONG KONG/SINGAPORE (Reuters) - Central banks from Tokyo to Sydney injected extra cash into banking systems or pledged to do so on Friday, as Asia joined a global campaign by monetary authorities to calm panicky credit markets.

"What the central banks are doing is a concerted effort to inject liquidity. And the worrying thing is that they do that when the system is not functioning the way it should," said Jimmy Koh, a currency strategist at United Overseas Bank.

The moves came after the European Central Bank injected record amounts of cash to prevent a financial system seizure after European banks essentially stopped providing short-term funds to one another on Thursday. The U.S. Federal Reserve also injected cash on a smaller scale.

The trigger was news that France's biggest listed bank, BNP Paribas (Paris:BNPP.PA - News), had frozen $2.2 billion worth of funds hit by U.S. subprime mortgage woes, further increasing fears the subprime problems would squeeze credit markets worldwide.

In Asia, a Bank of Japan official said on Friday the bank injected funds at its regular money market operation on Friday due to a slight rise in the benchmark overnight call rate.

The bank for the world's second-largest economy offered to supply 1.0 trillion yen ($8.45 billion) in funds. Traders said the amount was at the higher end of market expectations, but was not a major surprise.

The Reserve Bank of Australia (RBA) on Friday added more than twice the usual amount of money into the banking system, injecting A$4.95 billion ($4.19 billion) in its regular morning money market operation.

While no reports had surfaced in Asia of a drying up of credit markets on par with the problems in Europe, financial markets took a battering.

Asian stocks slumped across the board and the yen extended its gains as investors dumped riskier assets following a rout in global markets sparked by a flare-up in credit jitters.

The flight to safety shored up Japanese government bonds (JGBs), sending yields on the benchmark 10-year JGB down as much as 1.705 percent -- a level last seen on May 25.

Elsewhere in the region, central banks pledged to open the tap on additional liquidity on the first signs of a seizure in money markets.

The Bank of Korea's head of monetary policy, Jang Byung-wha, told Reuters on Friday the central bank was ready to take steps to maintain stability in the local financial system, such as supplying extra funds, if a credit crunch arises.

South Korean financial policy makers plan to hold a meeting later on Friday to assess the current financial market situation.

Singapore's central bank also said that it was ready to inject cash if needed, but noted it was sticking to its existing monetary policy.

"If there are liquidity bottlenecks, certainly we will come in to inject more liquidity. At this stage, the liquidity management is unchanged that we do not see any undue problems," Ong Chong Tee, deputy managing director of the Monetary Authority of Singapore, told a news conference.

(With additional reporting by Saeed Azhar in Singapore)