FRANKFURT: Bank-to-bank lending rates inched lower on Tuesday after the European Central Bank fuelled expectations for another interest rate cut next month.
ECB President Mario Draghi said the bank's policymakers discussed the possibility of cutting interest rates at their meeting last Thursday "but the Governing Council in its entirety decided this was not the time."
Draghi's comments increased expectations the bank could cut its key rate below its current record low of 0.75 percent, but also tempered expectations of the ECB starting to charge banks for depositing funds with it overnight.
"On the negative deposit rates," Draghi said in a post-rate decision news conference, "I will say only that for us these are largely unchartered waters".
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 the unprecedented move in the deposit rate to zero will nurture a return of more significant interbank lending by forcing banks to look for more profitable options.
Three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, eased to 0.370 percent from 0.374 percent.
Six-month Euribor rates also fell, to 0.653 percent from 0.658 percent while the shorter-term one-week rates remained at 0.096 percent. Overnight rates inched down to 0.109 percent from 0.111 percent.
Euribor rates, like counterpart Libor bank-to-bank rates , are 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 fell to 0.819 percent from 0.831 percent, while overnight dollar rates inched down to 0.327 percent from 0.329 percent.
The ECB's move to stop paying interest on banks' deposits saw almost half a trillion euros transferred from the ECB's deposit facility to the bank's current account.
But with the monthly reserves cycle nearing its end and fewer options available for banks to juggle their funding, the money has stabilised.
A total of 312 billion euros was parked in the ECB's deposit facility overnight. Banks' current account deposits at the ECB fell to 542 billion euros.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.
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