Libor's dramatic fall prompts questions about its rise

10/14/2009 | Financial Times (tiered subscription model)

Most market observers agree that the London Interbank Offered Rate, which is at a record low for sterling, euro and U.S. dollar, cannot drop much more, prompting speculation on when it will start increasing and what that means to the broader economy. "If there is any weakening in confidence in the market and we see higher levels of risk aversion, Libor rates could well move higher again," said Don Smith, an economist at Icap. "That wouldn't be very helpful for the economic outlook. It may become necessary for the Bank of England and European Central Bank to cut official rates still further."

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