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Printing Presses On Overdrive

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Bank delivers 4.4 billion pound emergency cash injection

LONDON (Reuters) - The Bank (NASDAQ: TBHS - news) of England pumped an emergency 4.4 billion pounds into money markets on Tuesday to bring overnight interest rates down after they had shot up in the wake of the crisis engulfing Northern Rock (LSE: NRK.L - news) .

Overnight rates hit 6.5 percent on Monday -- 75 basis points above the Bank's official rate -- on concern the troubles at Northern Rock <NRK.L>, the country's fifth-biggest mortgage lender, could spread to the wider banking sector.

The Bank's offer of extra liquidity -- its first emergency tender since the central bank's reform of its money market operations in May last year -- was heavily oversubscribed. Only 17.3 percent of bids were successful but overnight rates fell.

"It looks to be taking some of the pressure off the overnight rate," said John Wraith, head of rates strategy at RBS (LSE: RBS.L - news) .

Last week, Northern Rock had to seek an emergency funding line from the Bank which prompted a run on deposits that may be easing now after the government had to step in on Monday and guarantee people's savings.

The Bank said the extra cash on Tuesday was a direct result of the troubles at Northern Rock pushing up overnight rates.

"The Bank of England has made it clear it is not prepared to add longer-term money or change its collateral rules but it is prepared to act to bring the overnight rate down," said Wraith (LSE: WRT.L - news) .

The central bank also allotted 2.85 billion pounds in variable-rate long-term repo operations on Tuesday.

Edited by Adrian Allen

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Fair enough. I think this is one of the flaws in conventional HPC logic. The idea that the bank wouldnt manipulate monatary policy to keep things ticking over.

I was reading up on the great US depression. Apparently it has been long recognised that Hoover's insistance on keeping the books balanced was one of histories biggest fiscal follies.

Why would we let history repeat itself?

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