Euro-priced bank-to-bank lending rates continued to fall on Monday, as the money market readied itself for what is expected to be another giant injection of 3-year liquidity by the ECB later this month. Having pushed excess liquidity to record levels with the near half a trillion euros it pumped into the banking system in December, the ECB will give banks a second chance to grab the ultra-cheap funds on February 29.
With banks already awash with long-term cash and expectations of the uptake for the next round matching or even exceeding December's demand, 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 to 1.057 percent from 1.063 percent, hitting the lowest level since late January last year.
Rates in other maturities also dropped. Six-month rates fell to 1.359 percent from 1.365 percent, while 1onger-term 12-month rates dropped to 1.691 percent from 1.697 percent.
One-week rates, the most heavily influenced by excess liquidity which currently stands at 487 billion euros according to Reuters calculations, remained at 0.373 percent. Overnight rates dipped back to 0.362 percent from 0.367 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 has 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, France and Italy have all enjoyed a blast of positive investor sentiment on the back of the money.
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