Business & Finance

Euribor rates fall ahead of ECB rate decision

FRANKFURT : Key euro-priced bank-to-bank lending rates fell on Thursday as markets were turning sights on the European C

Published November 3, 2011 Updated November 3, 2011 11:53am

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By Imad Uddin

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Analysts in a Reuters poll expected the central bank to keep on hold this month and see a cut coming in December.

But money market bets the ECB may cut rates on Thursday remain evenly split even after data on Monday showed euro zone inflation held at 3 percent for a second straight month in October, above the bank's target of close to 2 percent.

Forward Eonia contracts for December price in a 20 percent probability the ECB will cut its key refinancing rate by 50 basis points to 1 percent.

Excess liquidity also put downward pressure on rates. It currently stands at 208 billion euros according to Reuters calculations, following a string of limit-free cash injections of long-term funding from the European Central Bank.

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 down to 1.580 percent from 1.584 percent.

Rates in longer maturities followed suit. Six-month Euribor fell to 1.776 percent from 1.780 percent while longer-term 12-month rates eased to 2.105 percent from 2.109 percent.

Shorter-term one-week rates bucked the trend and rose to 1.136 percent from 1.134 percent, but are still well below the ECB's 1.5 percent headline interest rate. Overnight rates fixed higher at 0.899 percent on Wednesday.

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.

Bank overnight deposits at the ECB also underscored the tensions dominating money markets. Banks parked 253 billion euros at the central bank overnight rather than risk lending it on.

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

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

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

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