FRANKFURT: Euro zone bank-to-bank lending rates hit fresh 20-month lows on Tuesday as the wave of liquidity the European Central Bank has fed banks in recent months weighed heavily on the money market.
Euribor rates have dropped by over a third as a result of the 1 trillion euros in 3-year loans the ECB has poured into financial markets since December. Banks are parking much of the money back at the ECB, with overnight deposits standing at 765 billion.
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 0.832 percent on Tuesday from 0.842 the previous day, the lowest level since July 2010.
Rates in longer-term maturities also dropped. Six-month rates fell to 1.136 percent from 1.146 percent and 12-month rates dropped to 1.474 percent from 1.485 percent.
One-week rates, the most heavily influenced by the level of cash in the system, dipped to 0.317 percent from 0.318 percent. Overnight rates eased to 0.359 percent from 0.361 percent.
Despite the sharp fall in interbank rates over the last few months, the benchmark rate remains well above the euro-era low of 0.634 percent they hit in early 2010.
Futures markets see further falls, however, on expectations the ECB will keep limit free liquidity available for the foreseeable future and official interest rates at their current record low of 1 percent.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 1000 GMT.
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