Business & Finance

Key Euribor rate inches up after Dexia rescue

FRANKFURT : Key euro-priced bank-to-bank lending rates rose on Monday as growing concern about European banks' ability t

Published October 10, 2011 Updated October 10, 2011 11:40am

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By Imad Uddin

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In response to intensifying euro zone troubles, the European Central Bank last week reinstated some of its most potent crisis-fighting tools, including 1-year liquidity injections but opted to keep interest rates at 1.5 percent.

Banking sector worries continue to weigh on sentiment, however. French-Belgian municipal lender Dexia SA agreed early on Monday to a state rescue that could pressure other euro zone governments to strengthen their banking sectors.

Key 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, inched up to 1.567 percent from 1.566 percent.

Six-month Euribor rates rose to 1.768 percent from 1.765 percent, while 12-month rates rose to 2.102 percent from 2.100 percent.

Shorter-term one-week rates , which are most heavily influenced by excess liquidity levels, rose to 1.185 percent from 1.178 percent.

Overnight rates fixed at 0.919 percent on Friday, down from 0.947 percent the previous day. Excess liquidity levels currently stand at 204 billion euros according to Reuters calculations.

Uncertainty created by the debt crisis engulfing much of southern Europe has increased banks' reluctance to lend to each other and prompted many banks to stock up on ECB euro funding.

Banks parked 256 billion euros at the ECB overnight, the highest since June last year, ahead of the ECB's monthly and weekly refinancing operations in the coming days.

The deepening crisis has forced the ECB back into emergency mode. It has now reintroduced ultra-long 1-year funding, plus one of 13-months and extended limit-free funding in all its lending operations up until the middle of next year.

The central bank is also buying sovereign bonds again, including the debt of Italy and Spain. The next update on its purchases is due on Monday at 1330 GMT.

Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.

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