Euribor hits another 17-month low

Bank-to-bank lending rates in Europe hit a fresh 17-month low on Friday as the European Central Bank's injection of more than one trillion euros into the banking system applied further downward pressure, a day after the bank kept interest rates unchanged. The ECB kept its benchmark rate at a record of low of 1 percent for a third month running as expected, after completing two massive injections of cheap three-year cash into the eurozone banking system.
Bank-to-bank lending rates have dropped by more than a third over the last few months, fuelled by the ECB's extraordinary lending operations in December and February, and are now homing in on the record lows they hit in early 2010. Patrick Jacq, rate strategist at BNP Paribas, said ECB President Mario Draghi's surprise warning on inflation following Thursday's policy meeting - suggesting the bank is unlikely to cut rates further - had not had an impact on the market.
"I don't think this has changed the picture," Jacq said. 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 0.894 percent from 0.902 percent, the lowest level since September 2010. Rates in other maturities also dropped. Six-month rates fell to 1.203 percent from 1.213 percent and 1onger-term 12-month rates dropped to 1.535 percent from 1.544 percent.
The ECB's two three-year cash injections in December and February have pushed excess liquidity in the money market to record levels of about 790 billion euros, according to Reuters calculations. Shorter-term one-week rates, the most heavily influenced by the level of cash in the system, ticked down to 0.318 percent from 0.319 percent, while overnight rates bucked the trend rising to 0.359 percent from 0.355 percent.
The three-month euro Libor rate fixed at 0.80329 percent from 0.81429 percent. The rate has dropped by almost half a percentage point this year. Three-month lending rates have already dropped by over a third since the ECB announced plans to lend banks three-year money - also known as LTRO - back in December, but are still well above the low of 0.634 percent they hit in early 2010.