Key euro-priced bank-to-bank lending rates edged lower on Friday as downward pressure from an excess of liquidity in the system overpowered concerns about the outlook for the economy and euro zone banks. 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 - ticked lower to 1.541 percent from 1.543 percent. Six-month Euribor rates eased to 1.744 percent from 1.748 percent, while 12-month rates fell to 2.083 percent from 2.089 percent.
One-week Euribor rates, most heavily influenced by excess liquidity - currently at just under 120 billion euros according to Reuters calculations - dipped to 1.092 percent from 1.098 percent. Overnight rates dropped to 0.884 percent from 0.955 percent on Wednesday, moving further away from the ECB's 1.5 percent headline interest rate.
The excess liquidity bloating money markets and keeping downward pressure on some bank-to-bank lending rates is set to remain high. Banks took 122 billion euros in the ECB's latest offering of 7-day funding on Tuesday, slightly below expectations of 130 billion. They also took 49.4 billion in the latest handout of 3-month loans bang in line with forecasts of 50 billion.
There were no takers for the ECB's offering of dollar funding for the second week running on Wednesday, helping ease fears about euro zone banks' access to dollar markets, after the facility was used late last month for the first time since February.
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