Key euro interbank lending rates fell to six-week lows on Friday, a day after the European Central Bank said it would continue pumping out unlimited cash until at least mid-January. The three-month Euribor rate - traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending - fell to 0.883 percent from 0.884 percent and the lowest since July 21.
Shorter-term one-week rates inched down to 0.511 percent from 0.512 percent, six-month rates remained at 1.134 percent, while one-year rates bucked the trend, rising to 1.414 from 1.413 percent. Overnight rates fell to a near four-week low of 0.364 percent on Thursday. Analysts expect the rate to climb towards the ECB's 1 percent benchmark interest rate as liquidity levels subside and it reins in its current loose lending tactics.
Euribor three-month interbank rates have been drifting down since hitting a year's high of 0.905 percent on August 6. Until then they had risen since the end of March, thanks to banks' preparations ahead of a 442 billion euro payback of ECB 12-month loans and as the euro-zone sovereign debt crisis fanned fears about banks' finances.
The recent downward trend has been driven by the belief the ECB will keep unlimited cash on offer for banks in the coming months. The ECB said at a policy meeting on Thursday it was extending its lending safety net until mid-January, giving banks access to unlimited 1-week to 3-month ECB funding into the new year. Despite the open arms approach, outstanding ECB lending has fallen more than a third since the start of July to 592 billion euros but liquidity remains abundant, with almost 100 billion euros deposited back at the ECB overnight on Thursday.
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