Bank-to-bank euro lending rates fell to fresh one-year lows on Friday, hit by anticipation ahead of another huge injection of ECB long-term funds into the money market at the end of this month that some traders also bet will boost interbank lending. Having pushed excess liquidity to record levels with the nearly half a trillion euros in three-year funds it pumped into the system in December, the European Central Bank will give banks a second chance to grab ultra-cheap loans on February 29.
Interbank rates have dropped by almost a third since the ECB announced its plans to lend banks three-year money at rock-bottom rates in so-called long-term refinancing operations (LTRO). The liquidity rush has headed off a credit crunch and prompted some thawing in interbank activity, although that remains name-specific, with the lingering risk of a disorderly Greek default keeping market participants cautious.
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 to 1.036 percent from 1.041 percent, hitting the lowest level since January last year. Equivalent London interbank offered rates, set by a smaller panel of banks than Euribor, fixed lower at 0.96536 percent from 0.96821 percent. Rates in other maturities also dropped. Six-month rates fell to 1.334 percent from 1.339 percent, while 1onger-term 12-month rates dropped to 1.664 percent from 1.669 percent.
One-week rates, the most heavily influenced by excess liquidity, which currently stands at a massive 485 billion euros according to Reuters calculations, eased to 0.368 percent from 0.371 percent. Overnight rates fixed at 0.371 percent for the third day running with market participants seeing a gradual decline in the fixings to a trough of 0.33 percent by July/August.