Business & Finance

Key Euribor rates ease as markets digest EU decisions

FRANKFURT : Key euro-priced bank-to-bank lending rates fell slightly on Monday after the ECB's reintroduction of 1-year

Published October 31, 2011 Updated October 31, 2011 11:18am

3 min

By Imad Uddin

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Banks took 57 billion euros on Wednesday in the first of two new offerings of one-year loans by the ECB. But a move by them to simultaneously cut back their intake of shorter-term ECB loans resulted in 16 billion euros being added to overall liquidity levels.

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 Monday to 1.591 percent from 1.592 percent.

Rates in longer maturities followed suit. Six-month Euribor decreased to 1.788 percent from 1.793 percent and longer-term 12-month rates inched down to 2.121 percent from 2.129 percent.

Shorter-term one-week rates , traditionally the most influenced by excess market liquidity, remained at 1.136 percent, while overnight interest rates fixed lower at 0.919 percent on Friday.

Worries over the euro zone debt crisis, and its impact on banks, continue to weigh against the current heavy overhang of money market liquidity, provided mainly by the ECB.

In the early hours of Thursday, European leaders made progress on their plans to recapitalise banks and scale up the size of the euro zone's 440 billion euro bailout fund although question marks remain over whether it will be enough to bring the debt crisis under control.

Bank overnight deposits at the ECB also underscored the tensions dominating money markets. Banks parked a two-week high of 248 billion euros at the central bank overnight, taking the lower interest rate from the ECB rather than risk lending to each other.

On top of that, the use of the ECB's emergency overnight lending facility remained elevated at 2.9 billion euros, figures on Monday showed.

The central bank reinstated some of its most potent crisis-fighting tools earlier this month, including one-year liquidity injections, although the moves have done little to encourage banks to start lending to each other again.

Money markets are already well overstocked with ECB funds. Excess market liquidity stands at 221 billion euros, according to Reuters calculations.

The ECB's liquidity is expected to keep the euro money market heavily over supplied with liquidity for the foreseeable future, maintaining downward pressure on interbank lending rates.

At the ECB's latest offering of weekly loans, banks took 197 billion euros, down from 201 billion euros the previous week but in line with expectations.

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

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