Key euro-priced bank-to-bank lending rates fell on Friday, a day after the European Central Bank unceremoniously ended its rate hike cycle and left financial markets wondering whether its next move would be a rate cut. 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 - dropped to 1.530 percent from 1.532 percent on Thursday.
Six-month Euribor rates fell to 1.728 percent from 1.732 percent, while 12-month rates sank to 2.059 percent from 2.067 percent. One-week Euribor rates , most sensitive to the ECB's reserves cycle and excess liquidity - currently at a hefty 111 billion euros according to Reuters calculations - bucked the trend, rising to 1.092 percent from 1.086 percent. Overnight rates fell to 0.863 percent from 0.870 percent, further below the ECB's 1.5 percent headline interest rate.
The worsening euro zone debt crisis and fears a return to recession is looming, have seen money markets ice up again. The reaction from jittery banks has been to stock up on limit-free funding provided by the ECB in case they are forced into fresh writedowns. At the same time, so fearful are they about lending to their peers in the current environment, that many are parking the stockpiled cash straight back at the ECB each day.