FRANKFURT: Key euro zone bank-to-bank lending rates hit new 21-month lows on Wednesday, dragged down by the enormous 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 percent last week (click ), has poured over 1 trillion euros of ultra-cheap, 3-year funding into the banking system since the end of December, a move which has sparked a 45 percent drop in the prices at which banks lend to each other.
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 Wednesday to 0.760 percent from 0.764 percent, hitting the lowest level since late June 2010.
Six-month rates fell to 1.057 percent from 1.061 percent and 12-month rates dropped to 1.393 percent from 1.398 percent.
Shorter term rates bucked the trend. The one-week rate , which continue to bump around all-time lows, inched up to 0.317 percent from 0.316 percent. Overnight rates , however, eased to 0.347 percent from 0.352 percent.
Dollar-priced bank-to-bank Euribor lending rates increased . Three-month rates rose to 0.989 percent from 0.971 percent, while overnight rates fell to 0.326 percent from 0.329 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 788 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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