The European Central Bank has said it plans to inject more cash into the euro zone banking system in the face of resurgent liquidity fears on financial markets.
'The ECB has noted re-emerging tensions in the euro money market,' the Frankfurt-based bank said in a statement.
'The ECB intends to reinforce in the upcoming main refinancing operation as well as in the following ones for as long as it is needed and at least until after the end of the year, its policy of allocating more liquidity than the benchmark amount in main refinancing operations.'
Commercial banks borrow from the European Central Bank in regular and sometimes exceptional refinancing operations.
Financial markets were shaken earlier this year by difficulties in the US sub-prime home loan sector, which led commercial banks to suspend normal lending practices.
As banks stopped lending to each other, the so-called inter-bank lending market froze up which led to a shortage of cash and required the ECB to step in and make extra funds available at its refinancing operations.
The ECB said it would closely monitor liquidity conditions in line with its aim of limiting market volatility.
Axel Weber, a German member of the board of governors of the ECB, predicted that calm would not return to financial markets by the end of the year.
