Key euro zone bank-to-bank lending rates fell sharply on Friday a day after the European Central Bank cut interest rates back to a record low of 1 percent and announced new measures to help ailing banks. Interbank lending markets - usually the starting point for lending in the wider economy - have become increasingly paralysed over the last month as the euro zone debt crisis has made banks more and more reluctant to lend to each other.
The ECB cut rates to a record low of 1.0 percent, offered ultra-long 3-year financing to banks and eased rules on the collateral it requires from banks to tap its funds, but doused hopes it would ramp up its bond-buying programme. Three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, fell to 1.437 percent from 1.470 percent, the biggest one-day drop in a month.
Six-month rates decreased to 1.675 percent from 1.701 percent, while 12-month rates fell to 2.012 percent from 2.034 percent. Shorter-term one-week rates - most heavily influenced by excess liquidity, a hefty 261 billion euros according to Reuters calculations - ticked down to 0.831 percent from 0.887 percent. Overnight rates fixed lower at 0.727 percent on Thursday from 0.747 percent on the previous day. The ECB's rate change will not officially take effect until Tuesday. There is a growing pack of banks now locked out of open funding markets and reliant on the ECB. Overnight deposits also remained extremely elevated at 310 billion euros on Friday. Emergency overnight borrowing stayed above 8 billion euros.