FRANKFURT: Key euro zone bank-to-bank lending rates hit fresh 21-month lows on Tuesday, weighed down by the large 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 1.0 percent earlier this month, has poured more than 1 trillion euros of ultra-cheap, three-year funding into the banking system since the end of December, driving interbank rates to half of what they were last August.
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 Tuesday to 0.746 percent from 0.75 percent, hitting their lowest level since late June 2010.
Six-month rates fell to 1.041 percent from 1.044 percent and 12-month rates dropped to 1.372 percent from 1.375 percent.
Shorter-term rates steadied. The one-week rate , which continues to bump around all-time lows, was stable at 0.315 percent. Overnight rates were also unchanged at 0.346 percent.
Dollar-priced bank-to-bank Euribor lending rates were little changed. Three-month rates were unchanged at 0.972 percent, while overnight rates were steady at 0.323 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 745 billion euros there. When market conditions are normal, 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.
Comments
Comments are closed for this article.