Key euro-priced bank-to-bank lending rates hit their highest levels in almost two years on Thursday as markets continue to digest policymaker comments about future rate path. The European Central Bank raised euro zone rates by a quarter of a percent to 1.25 percent earlier this month, ending almost two years of record-low interest rates.
Two-thirds of the 62 economists polled by Reuters after this month's rate hike, which until last month would have shocked experts, expect another rate rise by July at the latest. Expectations of policy tightening and a bank-led reduction in excess money market liquidity have been the main drivers behind a 30 basis points plus rise in bank-to-bank lending rates since the start of the year.
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 1.356 percent, the highest since late April 2009, from 1.349 percent the previous day. Six-month rates rose to 1.655 percent from 1.649 percent, longer-term 12-month rates inched up to 2.126 percent from 2.118 percent, while shorter-term one-week rates increased to 1.198 percent from 1.176 percent.
EONIA overnight interest rates inched up to 1.215 percent on Wednesday. Excess liquidity in the money market is currently around 20 billion euros, according to Reuters calculations. Banks boosted their intake of ECB funding to 97 billion euros this week, from 94 billion euros last week.
Attention is intensifying on what the ECB will do with its unlimited liquidity policy in the coming months. In March it left all its operations at full allotment until July, putting its exit strategy on hold for the second quarter running. But comments in recent days from Ewald Nowotny and Axel Weber have increased expectations that the bank will soon restart the phasing out process. It is already back to its pre-crisis range of funding operations, however. Three-month loans are again the longest maturity on offer and banks have now paid back all the six-month and 12-month loans the ECB injected during the turmoil.