FRANKFURT: Key euro-priced bank-to-bank lending rates rose on Monday, boosted by the falling level of excess liquidity in money markets and an expected interest rate rise from the European Central Bank.
Despite the disasters in Japan and the surge in tensions in parts of the Middle East, recent ECB policymaker comments have cemented expectations that the bank will raise rates in April.
The expecatations are keeping upward pressure on market rates. The three-month Euribor rate -- traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending -- rose to a new 22-month high of 1.210 percent from 1.203 percent.
Six-month rates rose to 1.521 percent from 1.513 percent, longer-term 12-month rates climbed to 1.971 percent from 1.962 percent and shorter-term one-week rates edged up to 0.808 percent from 0.806 percent.
EONIA overnight interest rates fixed lower at 0.635 percent on Friday.
Lower market excess liquidity also contributed to higher market interest rates. Excess liquidity fell to around 16 billion euros according to Reuters calculations, after banks trimmed their intake of cash in the ECB's main refinancing operation last week.
The central bank left euro zone interest rates on hold at a record low 1 percent earlier this month but flagged plans to raise them next month, wrongfooting markets which until then had expected the first rise much later in the year.
The ECB also left all its liquidity operations at full allotment for at least another three months, putting its exit strategy from stimulus measures on hold for the second quarter running.
A euro zone central bank source told Reuters on Saturday that the ECB was putting the finishing touches on a new facility to ensure troubled banks have access to medium-term liquidity.
The move could help the ECB to return its regular lending operations back to their pre-crisis auction style and wind down its policy of providing banks with all the cash they request.
It is already back to its pre-crisis range of funding. Three-month loans are once again the longest maturity on offer and banks have now paid back all the six-month and 12-month loans the ECB injected during the turmoil.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 1000 GMT.
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