Key euro-priced bank-to-bank lending rate jumped back above 1.0 percent on Friday, a day after the European Central Bank ratcheted up its rhetoric on inflation concerns in the euro zone. The ECB kept interest rates on hold at a record low of 1 percent on Thursday, but warned the euro zone faces short-term price pressures - taken by some in financial markets as a sign it could raise rates earlier than previously thought.
Euribor futures - the key pointer to future ECB rate moves - fell across the 2011-13 curve, with prices down 0.09 points on the June and September 2012 contracts, pushing implied yields higher. The three-month Euribor rate - traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending - rose to 1.006 percent from 0.998 percent. The increase was the biggest in one day since October 21.
"Most of the movement is related to that (ECB President Jean-Claude Trichet press conference)," Unicredit analyst Elia Lattuga said, and added the yield curve has steepened. But Euribor rates are not expected to rise strongly from current levels in the near future, as the ECB's offer for unlimited cash in its liquidity operations keeps downward pressure on rates and any policy rate hikes are still seen some time away.
"With the refi rate on hold, we don't expect big upward pressure on Euribor, it (the 3-month rate) will probably stand between 1.0 and 1.05 in the next month," Lattuga said. Other closely watched rates also rose. Six-month rates fixed at 1.244 percent from 1.229 percent, 12-month rates rose to 1.536 percent from 1.513 percent, while one-week rates jumped to 0.647 percent from 0.592 percent. Overnight rates fell to 0.375 percent on Thursday.