FRANKFURT: Key euro zone bank-to-bank lending rates hit fresh 21-month low on Thursday, dragged down by the enormous volume of cash the European Central Bank has pumped into financial markets since late last year.
The ECB, which left official euro zone interest rates at 1 percent last week, has poured over 1 trillion euros of ultra-cheap, 3-year funding into the banking system since the end of December, a move which has sparked a 45 percent drop in the prices at which banks lend to each other.
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 on Thursday to 0.757 percent from 0.760 percent, hitting the lowest level since late June 2010.
Six-month rates fell to 1.053 percent from 1.057 percent and 12-month rates dropped to 1.387 percent from 1.393 percent.
Shorter term rates also fell. The one-week rate, which continues to bump around all-time lows, inched down to 0.315 percent from 0.317 percent. Overnight rates , however, rose to 0.350 percent from 0.347 percent.
Dollar-priced bank-to-bank Euribor lending rates were mixed. Three-month rates fell to 0.974 percent from 0.989 percent, while overnight rates steadied around 0.326 percent.
Despite the sharp fall in interbank rates over the last few months, the benchmark euro-priced three-month rate remains some way above the euro-era low of 0.634 percent hit in early 2010.
With the ECB expected keep limit-free liquidity available and interest rates at their record low for the foreseeable future, further falls in Euribor rates are expected, but part of the reason for the higher rates is that lending markets remain impaired.
High excess liquidity in the banking system has led to high use of the ECB's overnight deposit facility, with banks last parking 653 billion euros there. In normal times the amounts are minimal.
The 0.25 percent the ECB offers banks for overnight deposits continues to act as a floor for money market rates as banks know they can get that level of interest no matter what.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.
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