Euro interbank rates continued to press higher on Monday driven by the expectation that the ECB will raise interest rates in April, while overnight fixings looked set to remain volatile throughout March. Following European Central Bank President Jean-Claude Trichet's shock comment last Thursday that a rate rise next month was possible, the benchmark Libor interbank euro rate fixed higher at 1.12438 percent and the equivalent Euribor rate rose to 1.172 percent.
Analysts said the rise in rates across the money market curve still had scope to extend. Since last Thursday, the December Euribor futures contract has fallen, resulting in a 21 basis point rise in the implied Euribor rate and causing the June to December sector of the curve to steepen by around 7.5 bps.
Current market prices suggest three rate hikes are fully priced in by December this year. Overnight rates looked set to continue their recent volatility over the course of the March reserve maintenance period, with liquidity set to remain broadly steady, but at low levels, analysts said. "We had excess liquidity provision at around 30-40 billion at the start of the current reserve period. I think we should have a similar pattern in the next period, and maybe slightly less," said Benjamin Schroeder, strategist at Commerzbank.
Eonia has fixed in a wide 70 bps range over the course of the February maintenance period. With many funding instruments pegged to the rate, this causes difficulty for money managers looking to forecast borrowing costs. ECB extraordinary support loans, designed to keep the wheels of interbank lending turning during periods of market stress, and worth a total of 185.9 billion euros will expire on Wednesday. Banks will be given the chance to replace these loans at Tuesday's one-month and one-week full allotment tender.
Comments
Comments are closed.