Thursday, 22 November 2012 15:33
FRANKFURT: Key Euribor bank-to-bank lending rates held steady for the second day running on Thursday, shoring up support as a year-long downtrend under the weight of excess liquidity in money markets fades.
Bank-to-bank lending rates have fallen sharply since last November when European Central Bank 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 rates further, helping keep rates steady.
Three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, were unchanged on Thursday at 0.190 percent. They had dipped on Tuesday but were unchanged for the three sessions prior to that.
The six-month rate dipped to 0.351 percent from 0.352 percent while the one-week rate was unchanged at 0.077 percent. The overnight Eonia rate fell to 0.072 percent from 0.074 percent.
Dollar-priced bank-to-bank Euribor lending rates were mixed, with three-month rates falling to 0.60462 percent from 0.60692 percent and one-week rates rising to 0.35000 percent from 0.29692 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 635 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.
Copyright Reuters, 2012