FRANKFURT: Euro zone bank-to-bank lending rates fell to new all-time lows on Thursday, driven down by record low European Central Bank interest rates and the central bank's move to stop paying banks interest on their overnight deposits.
The ECB's overnight deposit rate, which it cut to zero on July 5, acts as a floor for money market rates as banks only lend to rival banks if they are able to earn a better rate of interest than at the central bank.
The ECB hopes its unprecedented move, which means banks now get nothing if they park their spare cash there, will nurture a return of more significant interbank lending by forcing banks to look for more profitable options.
Although some money market experts fear the cut could backfire and kill off parts of the market, the move, plus a growing belief the ECB could continue to cut rates, has had an immediate impact on bank-to-bank rates.
Three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, hit a new all-time low of 0.458 percent from 0.464 percent.
Other key rates saw similar drops. Six-month Euribor rates fell to 0.743 percent from 0.748 percent. Shorter-term one week rates remained unchanged at 0.115 percent as did overnight rates at 0.119 percent.
Euribor rates, like counterpart Libor bank-to-bank rates , are currently at the centre of a manipulation scandal after it emerged a number of banks were falsely submitting the Libor rates they pay.
Dollar-priced three-month bank-to-bank Euribor lending rates fixed lower at 0.916 percent from 0.919 percent, while overnight dollar rates stayed at 0.339 percent.
Banks transferred almost half a trillion euros from the ECB's deposit facility to their current accounts at the central bank when its zero deposit rate came into force last week.
But with the monthly reserves cycle now in its stride and fewer options available for banks to juggle their funding, the money has now started to trickle back again.
A total of 360 billion euros was parked in the ECB's deposit facility overnight. Banks' current account deposits at the ECB dipped to 490.5 billion euros.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.
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