FRANKFURT: Key euro zone bank-to-bank lending rates hit fresh 21-month lows on Monday, weighed down by the large 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 1.0 percent earlier this month, 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 Monday to 0.75 percent from 0.753 percent, hitting the lowest level since late June 2010.
Six-month rates fell to 1.044 percent from 1.048 percent and 12-month rates dropped to 1.375 percent from 1.381 percent.
Shorter term rates steadied. The one-week rate , which continues to bump around all-time lows, was stable at 0.315 percent. Overnight rates inched up to 0.346 percent from 0.341 percent.
Dollar-priced bank-to-bank Euribor lending rates were mixed . Three-month rates rose to 0.972 percent from 0.962 percent, while overnight rates eased to 0.323 percent from 0.325 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.
With the ECB expected keep limit-free liquidity available and interest rates at their record low for the foreseeable future, further falls in Euribor rates are expected, but part of the reason for the higher rates is that lending markets remain impaired.
High excess liquidity in the banking system has led to high use of the ECB's overnight deposit facility, with banks last parking 743 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 as banks know they can get that level of interest no matter what.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.
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