It has been recently noted that the banks have been raising the interest rates for borrowing even when the central banks stress on cutting down the rates. This is mainly due to the credit crisis which has encouraged the banks to increase their commercial interest rate edge. Moreover as the banks are short of credit they often encourage people to save money in their banks and also reduce the availability of credit. Therefore it means that the interest rate edge between the main base rate and bank rates have been increased. Moreover the banks are also seeking ways to make saving money in their banks more attractive which is also reflected in the increase of inter bank lending interest rates.
Inter bank lending interest rates
The banks often fall short of cash temporarily and so they borrow funds from another bank. It helps the bank maintain greater liquidity in their banking system which also means that banks could have low liquidity ratio. Unfortunately due to credit crunch the inter bank lending interest rates have been increased which makes it a bit expensive for the banks to borrow funds from another bank.