Central Bank Governor Ajit Nivard Cabraal who returned to Colombo last week after attending the World Bank and IMF meetings said yesterday that both the Federal Reserve in the United States and the Bank of England are pumping in money into the system scuttling the previously held Article of Faith that "markets should be allowed to look after themselves."

Cabraal said that the Federal Reserve will be pumping US$ 160 billion to the US economy reeling under the sub-prime mortgage crisis while the Bank of England would be pumping an extra 50 billion pounds sterling into the banking system in the short-term.

He noted that these developments signaled departure from long-held economic beliefs in the face of new challenges.

The BBC reported on Friday that the Bank of England (Britain’s Central Bank) will pump in an extra 50 billion sterling pounds (63.4 billion Euros/99.9 billion dollars) into the banking system as early as this week.

Without citing sources, the broadcaster said the Bank of England would issue one-year bonds over three years and swap them for securitised mortgage assets the banks cannot sell due to the squeeze on the global credit markets, an AFP report from London said..

The idea is to encourage banks to lend to each other again and meet banks’ demands for longer term loans as well as kick start a slowing housing market, it added. The loans would not be included on the national debt, it reported.

"It will be the biggest ever special initiative by the British monetary authorities to supply liquidity to the British banking system," the BBC’s business editor Robert Peston wrote on the broadcaster’s website.

Royal Bank of Scotland was said earlier Friday to be set to raise between five and 12 billion pounds in a share issue to improve its finances.

The Daily Telegraph claimed the cash boost was required because of the need to combat subprime-related writedowns and high costs caused by the record-breaking takeover of ABN Amro.

The Financial Times said a rights issue was one of a number of options being considered and that bosses had not yet reached a decision.

Neither newspaper gave a named source.

RBS itself made no comment other than to note the speculation and say that its interim management report on trading performance and capital would be delivered next week.