Key euro-priced bank-to-bank lending rates hit their highest levels in two years on Friday as a fresh jump in euro zone inflation boosted expectations of further ECB rate hikes in the months ahead. New euro zone figures showed inflation in the 17-country bloc hit 2.8 percent in April, its fastest annual rate in more than 2-1/2 years and supporting expectations the ECB will raise rates again as soon as June.
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 1.385 percent on Friday, the highest since late April 2009 and up from 1.375 percent the previous day. Six-month rates rose to 1.675 percent from 1.669 percent, shorter-term one-week rates increased to 1.226 percent from 1.222 percent while longer-term 12-month rates rose to 2.132 percent.
EONIA overnight interest rates fell to 1.282 percent on Thursday. Excess liquidity currently stands at 25 billion euros after banks upped their intake of ECB funding this week, according to Reuters calculations. The central bank raised euro zone rates by a quarter of a percentage point to 1.25 percent earlier this month, ending almost two years of record-low interest rates.
Two-thirds of the 62 economists polled by Reuters after the rate hike, which until last month would have shocked experts, expect another rate rise by July at the latest. Besides ECB policy rates, attention is intensifying on what the central bank will do with its unlimited liquidity policy in the coming months.
In March it left all its operations at full allotment until July, putting its exit strategy on hold for the second quarter running. But recent comments from Ewald Nowotny and Axel Weber have increased expectations that the bank will soon restart the phasing out process. It is already back to its pre-crisis range of funding operations. Three-month loans are 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.