Euribor 3-month rates steady, others rise

FRANKFURT: Key euro-priced bank-to-bank lending rates were steady on Monday, as deep-seated concerns about the economic outlook balanced downward pressure from an excess of liquidity.

A worsening euro zone debt crisis and fears a recession is looming have seen money markets freeze up and prompted banks to stock up on limit-free ECB funding, pushing liquidity back to exceptionally high levels.

The three-month Euribor rate -- traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending -- remained at 1.540 percent.

Six-month Euribor rates inched up to 1.745 percent from 1.744 percent, while 12-month rates crept to 2.084 percent from 2.083.

One-week Euribor rates, most heavily influenced by excess liquidity -- currently at 111 billion euros according to Reuters calculations -- rose to 1.109 percent from 1.108 percent.

Overnight rates meanwhile dropped to 0.874 percent on Friday from 0.890 percent, well below the ECB's 1.5 percent headline interest rate.

Banks took 134 billion euros in the ECB's latest offering of 7-day funding last Tuesday, slightly below expectations of 140 billion, but huge against the ECB's calculation that markets were already oversupplied to the tune of 107 billion euros.

There were no takers for the ECB's offering of dollar funding on Wednesday, helping ease fears about euro zone banks' access to dollar markets, after the facility was used the previous week for the first time since February.

Earlier this month the central bank also reintroduced six-month funding, a crisis tactic it had previously mothballed, while it also extended limit-free funding in all its lending operations up until mid-January.

Most significantly, it has also started buying sovereign bonds again.

Euribor futures show markets have priced out further interest rate hikes for the next couple of years and also see around a 30 percent chance that the bank may be forced to cut rates early next year.

Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.

Copyright Reuters, 2011