Euribor rates rise as ECB seen on hold

FRANKFURT: Key Euribor bank-to-bank lending rates rose for the first time in four weeks on Thursday, adding to signs they have found a floor as expectations for further interest rate cuts by the European Central Bank fade.

Bank-to-bank lending rates have fallen sharply since last November when ECB plans emerged to flood the banking system with ultra-cheap, three-year cash.

 But the impact of the excess liquidity has now been largely priced in and there is uncertainty about whether the ECB will cut interest official rates further, helping support market rates.

Only a handful of the 71 economists polled by Reuters this week said the ECB will trim its main rate from 0.75 percent to 0.5 percent next Thursday. They were split down middle over the possibility of a rate cut early next year.

 Three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, edged up to 0.190 percent from 0.188 percent, marking the first gain since the end of October.

The six-month rate fell to 0.345 percent from 0.347 percent and the one-week rate inched up to 0.078 percent from 0.077 percent. The overnight Eonia rate rose to 0.073 percent from 0.072 percent.

Dollar-priced bank-to-bank Euribor lending rates  were mixed, with three-month rates falling to 0.59692 percent from 0.60769 and one-week rates remaining at 0.36000 percent.

The ECB's decision in July to stop paying interest on overnight deposits paved the way for further declines in euro-denominated rates by removing the 0.25 percent floor for the money market.

The amount of excess cash in the euro zone banking system is still extremely high at 631 billion euros, according to Reuters calculations.

With that figure set to remain high for the foreseeable future, money market experts have focused on whether the ECB could copy Denmark's example and start charging banks to deposit cash overnight.

Policymakers showed initial interest in the idea but some have since expressed reservations. Governing Council member Ewald Nowotny said last month a negative deposit rate was not realistic.

Asked about the idea earlier this month, Draghi said: "We haven't discussed (that)."

Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.