Euro rates broadly stable

The interest rates banks charge each other for euros were broadly stable on Monday and traders said there remained little sign of the return to "normal" lending between banks craved by European policymakers. Benchmark Euribor rates - down for the first time since late April on Friday - edged up to 0.898 percent but held below Thursday's peak, while equivalent euro Libor rates were fractionally lower at 0.83156 percent.
The Euribor rate, which underpins longer-term borrowing costs in the wider economy, has risen around 11 basis points since the European Central Bank a month ago withdrew a large chunk of the emergency cash it has provided to banks since 2008. More borrowers have been trying to access the interbank market since the ECB took the step, but many lenders have remained unwilling to lend funds to other banks, putting upward pressure on three-month rates. Overnight euro rates, however, fixed on Friday at 0.42 percent, down from around 0.55 percent in mid-July, due to the impact of monthly cash flows and the fact that some have now built up more liquidity since the ECB move.
The mechanics of the interbank market, little-watched when banks are on a strong footing, have been looked at carefully by broader markets since a collapse of bank-to-bank lending prompted the financial crisis to explode two years ago. Traders say that irrespective of what rates are doing, there is still very little longer-term interbank lending taking place - showing that the market is still subject to substantial dislocation.
The three-month rate is also still unlikely to rise above one percent in the near term as that is the price at which banks will be able to obtain longer-term funds from the European Central Bank at its next tender in September. Key will be how much banks roll into the three-month tender taking place at the same time, with a large take-up ensuring excess liquidity and lower rates through to the end of the year. Three-month dollar Libor rates fixed almost a basis point lower at 0.44469 percent.