Key euro-priced interbank lending rates hit their highest in over three years on Thursday after the ECB bolstered bets of an interest rate hike next week as Greece cleared another hurdle to securing international aid and avoid a near-term default.
Greece passed a second austerity vote needed to ensure the release of 12 billion euros in bailout funds from the International Monetary Fund and the European Union, prompting a relief rally in risky assets, easing pressure in money markets.
Greece's debt crisis had cast doubt on whether the European Central Bank would go ahead with a 25 basis point rate increase to 1.50 percent at its July 7 meeting, which was flagged at the bank's policy meeting early this month. ECB President Jean-Claude Trichet dashed such speculation on Thursday, saying the central bank was in "strong vigilance" mode as data showed inflation in June stabilised well above the bank's target to keep it below but close to 2 percent.
London interbank offered rates for three month euros fixed up at 1.49063 percent, its highest since early April 2009, from 1.49063 percent on Wednesday. The equivalent Euribor rate rose to 1.547 percent from 1.537 percent. Overnight lending rates for euros almost doubled to 1.78 percent as widely expected at the turn of the half-year when banks are traditionally reluctant to lend as they square up their books. Two-year German government bond yields, most sensitive to shifts in interest rate hike expectations, jumped off six month lows after Trichet's remark.
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