Rising US sub-prime defaults have triggered a broad-based repricing of risk and deleveraging in credit markets. An adjustment was needed after the credit boom and was bound to have costs, but it is proving even more prolonged and difficult than anticipated. Prices in some credit markets are now likely to overstate the losses that will ultimately be felt by the financial system and the economy as a whole, as they appear to include large discounts for illiquidity and uncertainty. Conditions should improve as market participants recognise that some assets look cheap relative to credit fundamentals. But with sentiment still weak, the Bank has announced a special scheme to improve the liquidity position of the banking system and to increase confidence in financial markets.
Published on
01 May 2008
Press release