Excess cash keeps Euribor rates down

01 Jan, 2012

Key euro zone bank-to-bank lending rates continued their downward march on Friday, pushed down by a funding glut after banks took almost half a trillion euros at the European Central Bank's first-ever injection of three-year liquidity. Euro zone banks received 489 billion euros last week in the first of two opportunities to access the longer-term money - operations the ECB hopes will minimise the chances of them responding to the region's debt crisis by slashing lending.
But despite being awash with liquidity, banks still lack trust in each other and prefer to deposit their money at the ECB's overnight facility than lend to each other. Latest figures show banks deposited 446 billion euros at the central bank, just shy of the 452 billion record reached earlier this week. Emergency overnight borrowing spiked to 17.307 billion euros, the highest since June 2009.
The intensification of the euro zone debt crisis has left a growing pack of banks virtually locked out of open funding markets and reliant on the ECB. In response the ECB has already reinstated some of its most potent crisis-fighting tools. Last week's bumper liquidity boost was the ECB's latest and most dramatic effort to bolster banks' finances.
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 1.356 percent from 1.369 percent on Thursday. Longer-term rates also fell. Six-month rates eased to 1.617 percent from 1.625 percent, while 12-month rates eased to 1.947 percent from 1.955 percent. One-week rates - most heavily influenced by excess liquidity, which rose to 448 billion euros according to Reuters calculations - fell to 0.677 percent from 0.704 percent. Overnight rates fell to 0.399 percent from 0.402 percent.

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