Key euro-priced bank-to-bank lending rates continued their recent sharp rise on Friday, as markets continued to bet on a further scaling back of ECB support in the coming months. 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 - hit a 15-month high at 1.029 percent, up from 1.025 percent.
It broke above the European Central Bank's 1 percent benchmark rate on Tuesday for the first time since July 2009, marking a milestone for money markets. Bank-to-bank three-month lending rates traditionally sit just above the ECB's headline rate, but the ECB's tactic of lending unlimited cash during the crisis has long kept them well below its benchmark rate.
Six-month euro rates also rose on Friday, climbing to 1.250 percent from 1.246 percent, one-year rates rose to 1.519 percent from 1.514 percent, while shorter-term one-week rates climbed to 0.798 percent from 0.787 percent. Overnight rates rose to 0.862 percent on Thursday, 4 percentage points higher than a month ago.
Interbank rates have been surging since banks slashed their consumption of ECB funding in a string of key lending operations at the end of last month. ECB policymakers left rates on hold this month and said that money markets were in the process of normalising, having reduced demand for ECB support funds. They are expected to decide in December or January whether to press on with scaling back the central bank's crisis-era lending support, and markets are increasingly betting it will put a limit back on its three-month loans.
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