Key Euribor bank-to-bank lending rates dipped on Friday after European Central Bank President Mario Draghi left open the possibility a day earlier of an interest rate cut in the months ahead. Bank-to-bank lending rates have fallen sharply since last November when ECB plans emerged to flood the banking system with ultra-cheap, 3-year cash. The ECB has also cut interest rates to a record low of 0.75 percent.
The ECB left interest rates on hold on Thursday and Draghi declined to comment when asked whether markets were right to expect a cut next month. Many analysts expect the ECB to reduce rates in the coming months. Three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, eased to 0.193 percent from 0.194 percent.
The six-month rate fell to 0.366 percent from 0.370 percent. The one-week rate was unchanged at 0.079 percent while the overnight Eonia rate eased to 0.087 percent from 0.090 percent. Dollar-priced bank-to-bank Euribor lending rates were mixed, with three-month rates rising to 0.58462 percent from 0.58308 percent and overnight rates easing to 0.29923 percent from 0.30385 percent.
The bank's decision in July to stop paying interest on overnight deposits paved the way for further declines by removing the 0.25 percent floor for the money market. The amount of excess cash in the euro zone banking system is extremely high at about 671 billion euros, according to Reuters calculations. With that figure set to remain high for the foreseeable future, money market experts have focused on whether the ECB could copy Denmark's example and start charging banks to deposit cash overnight.
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