THE fresh billions thrown at the financial system by the Treasury and Bank of England showed few signs of thawing frozen money markets yesterday.

The overnight lending rate between banks fell from 5.81% to 5.6%, but still stands more than one percentage point above the Bank’s official 4.5% rate.

The three-month interbank rate, which is key for pricing mortgages, fell back only slightly from 6.29% to 6.27% as banks remain fearful of lending to each other at longer terms.

Money markets remain tense despite the Bank of England pumping in an extra £10bn. And, alongside three other central banks, the Bank also said it was prepared to lend unlimited amounts of dollars to ease short-term funding conditions.

The Bank of England said: “Central banks will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets.”

The other central banks participating in the dollar lending are the European Central Bank, the US Federal Reserve and the Swiss National Bank.

The initiative comes after the leaders of 15 European countries pledged to guarantee lending between banks until the end of 2009, in a bid to get money markets moving again.

The Bank of England added that some banks deposited a total of £396m in its standing deposit facility on Friday.

This is significant as it means some banks would rather deposit funds with the Bank of England at an interest rate one percentage point be- low its official 4.5% base rate, rather than lend to each other.

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