SINGAPORE, Nov 20 (Reuters) - Dollar bank-to-bank lending rates dipped for a third session in Asia on Thursday while spreads between interbank and policy rate expectations stayed wide enough to reveal a growing fear of a deep and ugly global recession.
Three-month dollar funding costs, SIBOR , retreated to 2.1718 percent, having dipped steadily from 2.2757 percent on Monday, and in line with the gradual drop in Libor LIBOR.
Yet, even as massive cash and capital injections by global central banks encouraged the drop in money market funding costs, the sense of gloom over economic growth and business profits was getting deeper and weighing on other credit spreads.
The Federal Reserve slashed its U.S. growth forecasts while data showed U.S. consumer prices fell at a record pace last month and Japan's October exports fell by the most in seven years.
U.S. stocks .DJI fell to their lowest in 5-½ years while the risks grew of one or more U.S. automakers being forced into bankruptcy.
While dollar inter-bank rates have eased, the spread between 3-month dollar Libor and market expectations of official interest rates, measured by overnight indexed swaps, has stayed between 161 and 176 basis points for a week, after narrowing since late October.
"Risk is alive and well. There is a lot of it," Roger Cole, director of banking supervision and regulation at the Federal Reserve Board, told the Asia Risk conference in Hong Kong.
"We have injected a massive amount of liquidity into the system, and I think that is showing up in short-term availability of credit. That's not to say the market markets are without their challenges."
"Clearly we're in a period of financial change, substantial risk aversion and liquidity pressures which are having a real economic impact," Cole said.
The U.S. TED spread TEDCASH, the spread between 3-month treasury bills and inter-bank rates, has likewise stalled in a range between 192 and 215 basis points for more a week after coming off last week's low around 167.
"The ongoing impact of liquidity programmes should be narrowing spreads but that is going to take time," said Patrick Bennett, a strategist with Societe Generale.
"We may need to wait until deep into first quarter before any return to normal conditions," he said.
The Federal Reserve's minutes from the October policy meeting confirmed what money markets had already priced in, that the U.S. policy rate, already down to one percent, could be cut again in December.
The one-month dollar OIS hit 0.45 percent on Wednesday.
Federal Reserve Vice Chairman Donald Kohn said on Wednesday the U.S. central bank should consider forms of "quantitative easing," the effective lowering of interest rates by flooding markets with funds. (Additional reporting by Eric Burroughs; Editing by Kazunori Takada)
