Key euro-priced bank-to-bank lending rates rose on Friday as debate intensified whether Japan's quake and nuclear troubles could see the ECB delay its rate hike plans following its part in joint G7 FX intervention. The dramatic events in Japan over the last week have muddied the waters on the ECB's repeatedly flagged plans to rates by 0.25 percent next month.
G7 members stepped up their efforts to prevent any further escalation in financial market volatiliy on Friday by jointly intervening in currency markets to tame the recent sharp rise in the yen. 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 - rose to 1.172 percent from 1.170 percent.
Six-month rates inched up to 1.479 percent from 1.478 percent, longer-term 12-month rates climbed to 1.916 percent from 1.913 percent while shorter-term one-week rates bucked the trend dipping to 0.781 percent from 0.784 percent. EONIA overnight interest rates fixed lower at 0.700 percent on Thursday.
A recent decline in excess market liquidity is also keeping upward pressure on rates. Despite the ECB continuing to offer banks unlimited funding, it currently stands at just over 31 billion euros according to Reuters calculations. The central bank left euro zone interest rates on hold at a record low 1 percent this month but flagged plans to raise them next month, wrong footing markets which until then had expected the first rise much later in the year.
The ECB also left all its liquidity operations at full allotment for at least another three months, putting its 'exit strategy' from stimulus measures on hold for the second quarter running. It 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.
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