By Matthew Brown Nov. 17 (Bloomberg) -- The cost of borrowing in dollars for six months between banks fell below the yen rate for the first time in more than 16 years as Federal Reserve officials signaled they may keep interest rates low for even longer. The London interbank offered rate, or Libor, for six-month dollar loans fell 1 basis point to 0.506 percent today, compared with 0.516 percent for yen loans, according to data from the British Bankers’ Association. That’s the first time the dollar rate was lower than the yen rate since May 1993. Fed Chairman Ben S. Bernanke said yesterday that “headwinds” will restrain the pace of the recovery, indicating the benchmark rate may stay at a record low for longer. Bernanke also said “significant economic challenges remain” with lending constrained and the jobless rate above 10 percent. “The market is listening a bit more closely to Fed speak and that has been in favor of keeping rates low for a long period,” said David Keeble, head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “Three-month Libor is virtually nothing, so with no return at the front end people are looking further up the curve.” The Fed cut its benchmark interest rate to between zero and 0.25 percent in December and began buying U.S. Treasuries and mortgages-backed securities to restart credit markets and stimulate the economy. The central bank repeated its pledge on Nov. 4 to keep interest rates near zero for an “extended period.” Speaking in New York yesterday, Bernanke said U.S. asset prices aren’t out of line with underlying values, and central bank policy will ensure that the “dollar is strong.” The cost to borrow in dollars for three months dropped below that of Japan’s currency on Aug. 24. Dollar borrowing costs fell below those for the yen on Sept. 7 for four-month rates and on Oct. 29 for five-month rates. To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

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