Key euro interbank lending rates hit new 12-month highs on Friday after the European Central Bank said nothing to change expectations it will gradually scale back its lending support in the coming months. The three-month Euribor rate - traditionally the main gauge of interbank euro lending and a mix of interest rate expectations and banks' appetite for lending - rose to 0.905 percent from 0.904 percent, its highest since July 2009.
Bank-to-bank rates have climbed steadily since the end of March, when the euro-zone sovereign debt crisis fanned concerns about bank finances and many institutions reined in their lending. A steady bank-driven withdrawal of ECB liquidity has also helped to push up the cost of funds, with the benchmark three-month rate up 13 basis points since the ECB's last 12-month loan expired at the end of June.
ECB President Jean-Claude Trichet said on Thursday the rise was part of the normalisation process and promised a decision on liquidity supplies for the rest of the year on September 2. One-year rates rose to 1.428 percent from 1.425 percent while six-month rates were up at 1.154 percent from 1.152 percent.
Overnight rates dipped to a new five-week low of 0.363 percent on Thursday, the lowest since June 29, although analysts see the rate climbing slowly towards the ECB's 1 percent benchmark as liquidity levels subside. Shorter-term one-week rates rose to 0.568 percent from 0.565 percent amid ample liquidity supplies. Banks took 34 billion euros less in weekly funds from the ECB this week in its latest main refinancing operation, the lowest amount borrowed over seven days since the repayment of 442 billion euros in 12-month funds. But the level of excess cash in the system remains high. Banks' overnight deposits rose to a new three-week high at close to 150 billion, showing the excess liquidity in the system.
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