Key interbank euro borrowing costs rose to fresh 14-month highs on Thursday, grinding towards the European Central Bank's main refinancing rate as banks bid aggressively for funds in a market seeing dwindling excess cash. London offered rates for three-month euros fixed at 0.92500 percent from 0.92200 percent on Wednesday, while the equivalent Euribor rate rose to 0.987 percent from 0.985 percent, within sight of the ECB's 1 percent benchmark rate.
The overnight Eonia rate, however, fixed slightly lower at 0.726 percent on Wednesday but some strategists expect it to drift higher in coming after the ECB signalled its intention to gradually wind down crisis support measures. ECB Governing Council member Axel Weber ratcheted up hawkish talk this week, urging an end to extraordinary liquidity measures sooner rather than later and highlighting the policy divide between the ECB and a Federal Reserve that looks poised to expand its quantitative easing plans.
"If things progress as they have economy wise we'll see increased rhetoric as we come into the first quarter of 2011 that the ECB will want to phase out the tenders and we will get a normalisation of Eonia rates back up to 1 percent. That's the big bet going forward," Kenneth Broux, financial markets analyst at Lloyds TSB, said.
In a sign too of the gradual healing process in money markets, Spanish, Portuguese and Greek banks who had been shut out for most of this year from the interbank market, slightly reduced their borrowing from the ECB in September, data showed this week.
Comments
Comments are closed.