Key eurozone bank-to-bank lending rates fell sharply as the new year got underway in European markets on Monday, pushed down by the glut of excess cash created by the ECB's recent bumper injection of ultra-long and ultra-cheap three-year liquidity. Euro zone banks received 489 billion euros late last month in the first of two opportunities to access the longer-term money - operations the ECB hopes will minimise the chances of them responding to the region's debt crisis by slashing lending.
The move has seen the amount of cash in the eurozone financial system balloon, adding serious downward pressure on rates banks charge each other in lending markets. With the traditional tense end-of-year period now in the rear-view mirror, is beginning to exert its influence more.
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 1.343 percent from 1.356 percent on Friday. Longer-term rates also fell. Six-month rates eased to 1.606 percent from 1.617 percent, while 12-month rates dropped to 1.937 from 1.947 percent.
One-week rates - most heavily influenced by excess liquidity, which sits at a staggering 430 billion euros according to Reuters calculations - fell to 0.652 percent from 0.677 percent. Overnight rates bucked the trend, rising to 0.629 percent from 0.399 percent. Despite being awash with liquidity, the eurozone's sovereign debt worries mean banks still lack the trust to lend to each other and prefer to hoard their money at the ECB. Latest figures show banks deposited 414 billion euros at the central bank overnight, not far off the 452 billion record reached last week. Emergency overnight borrowing also remained extremely high at almost 15 billion euros.
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