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Last Updated: Thursday, 20 September 2007, 11:50 GMT 12:50 UK
Australia move lifts credit hopes
Reserve bank of Australia
Australia had been expected to raise rates before recent jitters
Australia's central bank has hinted that recent credit crunch problems may be easing by draining liquidity from the banking system.

The Reserve Bank of Australia (RBA) added 544m Australian dollars (233.6m; $469m) to the system on Thursday - despite a daily deficit of A$1.46bn.

Analysts said that this, in real terms, withdrew A$941m of liquidity.

However, Wall Street bankers have warned it will take time before the global credit market returns to normal.

Selective lenders

The RBA's action - its fourth-biggest one-day drain of liquidity on record - was a sign that it felt the reduction of US rates by 50 basis points to 4.75% had restored confidence in the money markets, said ICAP senior economist Matt Johnson.

"My guess is I think the Fed has done the trick," he said.

Darren Gibbs, chief economist at Deutsche Bank in New Zealand, said that, looking at the markets, "one is left with the distinct impression that one can see some light at the end of the tunnel, though bears will think that this is probably an approaching freight train."

The backlog of financing deals which firms worldwide were committed to before the credit squeeze - estimated at $300bn - would take some time to clear, analysts said.

"Even though lenders are going to have cheaper money available to them, they're going to be very selective on how they invest that money," said Bill Featherstone, managing director of J Giordano Securities.

Central banks across the world have been pumping cash into money markets after banks became reluctant to lend to one another since the onset of the credit crunch - brought about by woes in the US housing market.

And amid the turmoil, several central banks, including the RBA, have delayed much-expected interest rate rises.

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