Reuters: Financial Services and Real Estate: Excess liquidity pulls down Euribor rates

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Excess liquidity pulls down Euribor rates May 8th 2012, 09:24 Tweet Share this Email Print Tue May 8, 2012 5:24am EDT FRANKFURT, May 8 (Reuters) - Key euro zone bank-to-bank lending rates fell to new 23-month lows on Tuesday, with the European Central Bank's trillion euros of long-term loans continuing to exert downward pressure on market rates. The ECB, which left official euro zone interest rates at 1.0 percent at its monthly meeting last Thursday, has poured more than 1 trillion euros of ultra-cheap, three-year funds into the banking system since the end of December, driving interbank rates to half of what they were last August. ECB President Mario Draghi said last Thursday the bank's policymakers agreed it would be premature to pursue an exit from the extraordinary measures they have taken to stem the euro zone crisis. These include the three-year funding operations. 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 further on Tuesday, hitting 0.692 percent from 0.693 percent - the lowest since May 2010. Six-month rates fell further below 1 percent to 0.980 percent from 0.982 percent and 12-month rates dropped to 1.281 percent from 1.284 percent. Shorter-term one-week rates continued to bump around all-time lows. The rate remained at 0.317 percent. Overnight rates edged up to 0.348 percent from 0.343 percent. Dollar-priced bank-to-bank Euribor lending rates were mixed. Three-month rates fell to 0.902 percent from 0.907 percent while overnight rates remained unchanged at 0.317 percent. Despite the sharp fall in interbank rates over the last few months, the benchmark euro-priced three-month rate remains above the euro-era low of 0.634 percent hit in early 2010. The 0.25 percent the ECB offers banks for overnight deposits continues to act as a floor for money market rates as banks know they can get that level of interest no matter what. With the ECB expected to keep limit-free liquidity available and interest rates at their record low for the foreseeable future, further falls in Euribor rates are expected. High excess liquidity in the banking system has led to heavy use of the ECB's overnight deposit facility, where banks parked 782 billion euros on Monday. In normal times the amounts are minimal. Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT. * For a table of the latest Euribor fixings for terms of one week to one year, double click on * For a table of the previous day's fixings of EONIA swap rates, which show market expectations for future overnight lending rates, double click on * For graphs of historic Euribor and EONIA swap rates, right click on the links in angle brackets below, and select 'Related Graph' 1 week 2 week 3 week 1 month 2 month 3 month 4 month 5 month 6 month 7 month 8 month 9 month 10 month 11 month 1 year (Reporting by Frankfurt newsroom) Tweet this Link this Share this Digg this Email Reprints Comments (0) This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

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