Key Euribor rate soars

The main euro-priced bank-to-bank lending rate inched higher on Friday as the amount of money in the market beyond what banks need for their day-to-day operations decreases further. Excess liquidity in the euro zone fell to 169 billion euros from 182 billion euros the previous day.
Short-term money market rates are expected to rise closer to the European Central Bank's main refinancing rate once excess liquidity falls below a threshold estimated to be in the range of 100 billion to 200 billion euros. Early repayments of ECB crisis loans by banks is one of the main drivers of falling excess liquidity in the system and banks are expected to return another 4 billion euros next week.
Overall, they took more than 1 trillion euros in late 2011 and early 2012 from the ECB in three-year loans. The rate cut last week has made the loans cheaper as they are tagged to the ECB's main refinancing rate, now at 0.25 percent. On Friday, Eurostat confirmed that inflation fell to 0.7 percent in October, well below the ECB's target of just below 2 percent.
Earlier this week, ECB Board member Peter Praet told the Wall Street Journal that asset purchases and a negative deposit rate were among the options the central bank could use to bring inflation up to its target just below 2 percent, if needed. The three-month Euribor rate, traditionally the main gauge of unsecured bank-to-bank lending, rose to 0.218 percent from 0.217 percent. The one-week rate ticked up to 0.097 percent from 0.096 percent while the six-month Euribor rate inched lower to 0.318 percent from 0.319 percent. The overnight Eonia rate rose to 0.076 percent from 0.070 percent.