Key euro zone bank-to-bank lending rates fell to 21-month lows on Friday, extending falls driven by the enormous volume of cash the European Central Bank has pumped into financial markets since late last year. The ECB, which left official euro zone interest rates at 1 percent last week, has poured over 1 trillion euros of ultra-cheap, 3-year funding into the banking system since the end of December, driving interbank rates to half of what they were last August.
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 on Friday to 0.753 percent from 0.757 percent, hitting the lowest level since late June 2010. Six-month rates fell to 1.048 percent from 1.053 percent and 12-month rates dropped to 1.381 percent from 1.387 percent.
Shorter term rates steadied. The one-week rate, which continues to bump around all-time lows, remained unchanged at 0.315 percent. Overnight rates fell to 0.341 percent from 0.350 percent. Dollar-priced bank-to-bank Euribor lending rates fell. Three-month rates fell to 0.962 percent from 0.974 percent, while overnight rates eased to 0.325 percent from 0.326 percent.
Despite the sharp fall in interbank rates over the last few months, the benchmark euro-priced three-month rate remains some way above the euro-era low of 0.634 percent hit in early 2010. High excess liquidity in the banking system has led to high use of the ECB's overnight deposit facility, with banks last parking 706 billion euros there. In normal times the amounts are minimal. The 0.25 percent the ECB offers banks for overnight deposits continues to act as a floor for money market rates.
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