FRANKFURT: Key euro zone bank-to-bank lending rates hit a fresh 20-month low on Tuesday, weighed down by excess cash the European Central Bank has pumped into the financial system to revive the interbank market and encourage bank lending.
Euribor rates have dropped by more than 40 percent as a result of the 1 trillion euros the ECB has poured into financial markets since December in the form of 3-year loans.
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 0.794 percent from 0.800 percent, hitting the lowest level since July 2010.
Rates in longer-term maturities also dropped. Six-month rates fell to 1.097 percent from 1.103 percent and 12-month rates dropped to 1.433 percent from 1.440 percent.
The one-week rate, which continues to bump around all-time lows, remained at 0.320 percent. Overnight rates fell to 0.349 percent from 0.359 percent.
Despite the sharp fall in interbank rates over the last few months, the benchmark three-month rate remains above the euro-era low of 0.634 percent it hit in early 2010.
Futures markets see further falls, however, on expectations the ECB will keep limit-free liquidity available for the foreseeable future and that official interest rates stay at their current record low of 1 percent for an extended spell.
The ECB's recent cash injections have helped the money market but the situation remains difficult. Banks are parking much of their excess cash back at the ECB's overnight facility, with the latest data showing the amount at 770 billion euros.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.