Euribor rise slows after ECB dampens rate speculation

A rise of key euro-priced bank-to-bank lending rates slowed on Friday, after the European Central Bank dampened expectations built up in recent weeks that it could hike interest rates as early as the middle of the 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 - inched up to 1.088 percent from 1.087 percent.
The rise in longer-term rates also slowed. Six-month rates rose to 1.341 percent from 1.340 percent and 12-month rates, which have been among the fastest climbing rates in recent weeks, edged up to 1.682 percent from 1.678 percent. Shorter-term one-week rates fixed at 0.865 percent while overnight rates fixed at 0.526 percent on Thursday, the lowest since mid-January.
The ECB left euro zone interest rates on hold at a record low of 1 percent on Thursday and tempered speculation of a near-term rate hike, saying last month's larger-than-expected jump in inflation had not altered its assessment of medium-term price risks.
The level of excess liquidity has also jumped in recent days to almost 100 billion euros having been under 10 billion last week after demand for ECB weekly cash hit its highest level this year.
The overnight rate topped 1 percent for the first time in 19 months last week after the level of excess liquidity plunged. ECB President Jean-Claude Trichet said on Thursday that the recent reaction of overnight rates showed that the health of money markets had improved. He added a caveat, however, that some other key markets remained dysfunctional.
The comments have bolstered expectations that the ECB will resume the process of gradually removing its crisis support next month. The intensification of the euro zone debt crisis at the end of last year forced it to delay a scale-back, but ECB watchers expect it to resurrect its plan to begin limiting the amount of 3-month -and possibly 1-month- funding on offer to banks. The ECB is already back to its pre-crisis range of funding. Three-month loans are once 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.