The amount of excess liquidity in the eurozone financial system will remain high going into 2011, analysts said on Wednesday after the European Central Bank issued a new round of three-month loans to eurozone banks. The ECB's three-month tender drew more loan demand than analysts had expected. Banks borrowed 149.5 billion euros from the central bank, compared with expectations in a Reuters poll of analysts of 105 billion euros.
Eonia could head lower in 2011: analysts Without any further borrowing, and with the expiration of 200 billion in ECB tenders set for Thursday, an estimated 60 billion euros will be available into 2011.
"We think that the numbers are that if nothing is taken tomorrow, we'll get a reduction of about 50 billion euros in the system, which means the excess liquidity will still be about 60 billion euros," said Laurence Mutkin, head of European rates strategy at Morgan Stanley in London. The ECB will offer a 13-day tender on Thursday. A weekly tender on Tuesday saw a 5.6 billion euro increase in bank borrowing.
Mutkin said the level of excess liquidity means that the euro-denominated overnight interbank borrowing rate, Eonia, should remain soft. "Throughout this maintenance period, relative to the two pervious maintenance periods, Eonia has fixed lower every day," he said.
Tuesday's Eonia rate fixed at 0.391 percent. Banks in the eurozone have been reluctant to lend to one another as news of their exposure to shaky sovereign debt emerged. The ECB is planning to perform stress tests on eurozone banks early in 2011 as part of a European Union plan to address the sovereign debt crisis. The tests are designed in part to restore confidence in the banking system.