Euribor sinks to 5-month low as rate cut impacts

FRANKFURT: Key euro-priced bank-to-bank lending rates fell further on Wednesday, hitting a fresh five-month low as last week's surprise interest rate cut from the European Central Bank continued to feed through to money markets.

The ECB cut rates by 25 basis points to 1.25 percent last Thursday as it warned the euro zone could slide into a mild recession by the end of the year.

Interbank market rates continued to drop on Wednesday after Friday's initial sharp fall in the wake of the cut.

Three-month Euribor rates , traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, fell to 1.47 percent from 1.474 percent, dropping to their lowest since June.

Six-month Euribor eased to 1.691 percent from 1.692 percent while 12-month rates eased to 2.036 percent from 2.040 percent.

Shorter-term rates fell further below 1 percent. One-week rates fell to 0.942 percent from 0.952 percent. On Tuesday overnight rates jumped to 1.219 percent from 0.885 percent, as is normal at the end of an ECB maintenance period.

The ECB reinstated some of its most potent crisis-fighting tools last month, including one-year liquidity injections, although the moves have done little to suggest they will kick-start interbank lending.

ECB liquidity is expected to keep the euro money market heavily oversupplied for the foreseeable future and maintain downward pressure on interbank rates.

Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 1000 GMT.

Copyright Reuters, 2011