FRANKFURT: Euro priced bank-to-bank lending rates continued their slide towards the 1 percent mark on Monday, as the money market readied itself for another huge dump of ultra-cheap 3-year loans from the European Central Bank at the end of the month.
Having pushed excess liquidity in the banking system to record levels with its December injection of almost half a trillion euros, the ECB will give banks a second chance to get their hands on its limit-free 3-year cash on February 29.
With banks already awash with long-term funds and expectations of the uptake for the next round as high as 1 trillion euros, downward pressure on lending rates in the money market is intense.
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 Monday to 1.094 percent from 1.102 percent, hitting the lowest level since late February last year.
Rates in other maturities also dropped. Six-month rates fell to 1.391 percent from 1.396 percent, while 1onger-term 12-month rates dropped to 1.725 percent from 1.732 percent.
One-week rates - most heavily influenced by excess liquidity, now at 492 billion euros according to Reuters calculations - fell to 0.384 percent from 0.387 percent. Overnight rates bucked the trend, inching up to 0.377 percent from 0.366 percent the previous day.
While it is still not completely clear whether the money from December's 3-year ECB loan operation is filtering through to companies and consumers, ECB President Mario Draghi said the move had avoided "a major, major credit crunch".
The cash is, however, having a clear positive impact on both the money market and euro zone bond markets. Spain and France enjoyed a blast of positive investor sentiment on the back of the money on Thursday with borrowing costs for both falling.
Money market experts also report that some banks are now prepared to lend to some of their peers for as long as three months, a marked improvement on last month when even month-long loans were hard to come by in the open market.
With high amounts of excess liquidity in the system, banks are currently depositing much of the extra cash back at the ECB.
Overnight deposits at the ECB hit a record high of 528 billion euros at the peak of the ECB's last reserves period and currently stand at a still-hefty 511 billion euros.
Short-term market rates are well below the bank's main 1 percent policy rate due to the excess cash. Its 0.25 percent overnight deposit rate is acting as a floor for money markets.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 1000 GMT.
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