The benchmark Euribor bank-to-bank lending rate was unchanged on Monday, holding steady as markets assess the chance of the European Central Bank engaging in more policy easing. On Friday, ECB President Mario Draghi said the central bank was looking carefully at money market interest rates and was ready to act if they rise too high, but he gave no indication that any move would be imminent.
Other ECB policymakers have indicated they see no immediate need to make fresh long-term loans (LTROs) to banks. With the amount of excess liquidity in the banking system falling recently, analysts have begun to expect the ECB may offer a new round of LTROs to help hold down money market interest rates and to encourage banks to lend.
However, banks will pay back less than 1 billion euros of a previous round of LTROs this week, which means excess liquidity should stay relatively stable. On Friday, the three-month Euribor rate, traditionally the main gauge of unsecured bank-to-bank lending, was unchanged at 0.227 percent. The six-month Euribor rate rose to 0.341 percent from 0.340 percent, while the one-week rate remained at 0.098 percent. On Friday, the overnight Eonia rate rose to 0.085 percent from 0.080 percent.
Excess liquidity in the euro zone banking sector - the amount of money in the market over and above what the banking system needs to function - was at 217 billion euros, close to its lowest level since late 2011, before the ECB flooded markets with more than 1 trillion euros of long-term loans. Short-term money market rates are expected to rise closer to the main refinancing rate, currently at 0.5 percent, once excess liquidity in the system falls below a threshold estimated to be in the range of 100 billion to 200 billion euros.
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