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Lending rates are gradually improving

The Associated Press

NEW YORK – The government’s efforts to crank open the credit markets have led to some mild improvements in lending rates and Treasury bill yields. But it probably will take months, and perhaps a few years, before lending returns to healthier levels.

It was clear Tuesday that there still is plenty of fear in the lending business – one indicator, the difference between the rate at which banks lend to other banks and the rate at which they buy U.S. government debt remains near a 25-year high.

But analysts believe that as long as conditions keep improving, the economy should be able to grow.



“I don’t think we need to have credit conditions come back to normal before we see signs that the economy is recovering,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. He said he believes the financial system won’t be fully restored until at least 2010, but that he expects the economy to turn around in the second half of 2009 after the housing market bottoms.

The problem is that the health of the economy and the credit markets is intertwined: The health of the economy relies on credit, and the willingness to lend depends on the economic outlook. As a result, the economy’s recovery might be jagged and gradual, as lenders incrementally loosen up as they grow more confident that borrowers are on steadier ground.




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