FRANKFURT: Key euro-priced bank-to-bank lending rates crept higher on Monday as markets focused on whether stronger-than-expected economic growth in the euro zone will prompt the ECB to proceed with further rate hikes.
Germany, Europe's largest economy, grew by a startling 1.5 percent in the first three months of the year, data showed on Friday, with France also growing by a robust 1.0 percent.
Having effectively closed the door to a June rate hike last week, the ECB is expected to raise them in July to 1.5 percent, although the recent intensification of the region's debt crisis has seen some investors set expectations for later in year.
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 -- increased on Monday to 1.426 percent from 1.425 percent.
Six-month rates edged up to 1.707 percent from 1.703 percent, longer-term 12-month rates increased to 2.145 from 2.141 percent, while shorter-term one-week rates rose to 1.77 percent from 1.174.
EONIA overnight interest rates fixed higher on Friday at 1.110 percent from 1.061 percent.
While expectations that the ECB may not be able to hike rates aggressively over the next year as economists may have been expecting is playing a role in current money market fluctuations, the recent rise in excess liquidity is applying greater downward pressure.
Excess euro money market liquidity currently stands at just under 50 billion euros according to Reuters calculations, having hit 60 billion at the end of the last reserves period, the highest since early February.
Banks took 125 billion euros in the ECB's weekly refinancing operation last week and almost 81 billion in one-month funding, roughly in line with trader expectations and expiring amounts.
Besides ECB policy rates, market attention is intensifying on what the central bank will do with its unlimited liquidity policy in the coming months, a decision it is expected to make in June.
In March it left all its operations at full allotment until mid July, putting its exit strategy on hold for the second quarter running.
With the euro zone debt crisis refusing to abate and money market dysfunctionality equally stubborn, some experts argue the ECB will have to prolong its support again.
It is already back to its pre-crisis range of funding operations. Three-month loans are again the longest maturity on offer and banks have now paid back all the six-month and 12-month loans the ECB injected during the turmoil.
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