Key euro-priced bank-to-bank borrowing costs are set to remain underpinned by ample liquidity even after European banks reduced their borrowing of one-week funds from the European Central Bank on Tuesday. Debt problems in the eurozone prompted the ECB to extend its limit-free lending to banks that it began to offer at the peak of the 2008 financial crisis, out to mid-April and some analysts say the odds are high it will extend it even further.
Banks took 180 billion euros in one-week ECB loans on Tuesday, compared with 195.7 billion euros the previous week in a sign analysts said was a mere reversal of a strong take-up at year-end when banks needed to stock up on cash. Excess liquidity in the banking system will reduce by around 10 billion euros, analysts calculate, still leaving an ample 40 billion euros or so and keeping the Eonia overnight lending rate pinned under 0.40 percent for the remainder of the ECB's reserve maintenance period ending next Tuesday.
Commercial bank deposits at the ECB's overnight facility remained elevated at 80 billion euros, pointing to a surplus of cash in the system, they said. The Eonia overnight rate fixed at 0.398 percent on Monday and forward EONIA shows the rate at 0.70 percent by the ECB's policy meeting in June, according to Barclays Capital forecasts.
Three-month euro Libor stabilised at 0.93125 percent, according to the British Bankers' Association's daily fixings. The equivalent 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 - held at 0.995 percent, the lowest level since mid-October.
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