Key euro zone bank-to-bank lending rates continued their recent slide to their lowest in nearly nine months on Friday, weighed by the ECB's recent record injection of almost half a trillion euros of ultra-long and cheap liquidity. Euro zone banks received 489 billion euros ($625 billion) late last month in the first of two opportunities to take out 3-year loans - operations the ECB hopes will minimise the chances of them responding to the region's debt crisis by slashing lending.
Now markets have come through the traditionally tense end-of-year period, the huge overhang of excess cash in the financial system is starting to exert a greater influence on lending rates. 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 to 1.288 percent - the lowest since early April - from Wednesday's 1.303 percent.
Longer-term rates also dropped. Six-month rates eased to 1.560 percent from 1.573 percent, while 12-month rates dropped to 1.890 percent from 1.903 percent. One-week rates - most heavily influenced by excess liquidity, which sits at 415 billion euros according to Reuters calculations - fell to 0.564 percent from 0.584 percent. Overnight rates edged down to 0.369 percent from 0.395 percent.
Despite being awash with liquidity, banks still lack the trust to lend to each other given their exposures to troubled euro zone sovereign debt, and prefer to hoard their money at the ECB. Latest figures show banks deposited an all-time high of 455 billion euros at the central bank overnight. Overnight borrowing fell to 1.9 billion euros, the lowest since late November.
Bloated after gorging themselves at last month's 3-year cash handout, banks trimmed their intake of 1-week funding on Tuesday to 130 billion euros. On Wednesday they also halved the amount of dollar funding they took from the ECB, to $25 billion from $50 billion.
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