July 25, 2012 / 9:18 AM / 5 years ago

Euribor rates fall to new lows on rate cut expectations

 FRANKFURT, July 25 (Reuters) - Euro zone bank-to-bank
lending rates fell to new all-time lows on Wednesday, driven
down by record-low European Central Bank interest rates and
growing expectations that it could take them further down in the
coming months.
 The ECB's overnight deposit rate, which it cut to zero on
July 5, acts as a floor for money market rates as banks only
lend to rival banks if they are able to earn a better rate of
interest than at the central bank. 
 The ECB hopes its unprecedented move, which means banks now
get nothing if they park their spare cash there, will nurture a
return of more significant interbank lending by forcing banks to
look for more profitable options.
 Although some money market experts fear the cut could
backfire and kill off parts of the market, the move, plus a
growing belief the ECB could continue to cut rates, has had an
immediate impact on bank-to-bank rates.
 On Friday, ECB Executive Board member Benoit Coeure said
that cutting the deposit rate below zero is an option.
 
 Three-month Euribor rates, traditionally the
main gauge of unsecured bank-to-bank lending, hit a new all-time
low of 0.427 percent from 0.435 percent. 
 Other key rates saw similar drops. Six-month Euribor rates
 fell to 0.712 percent from 0.721 percent.
Shorter-term one week rates dipped to 0.109
percent from 0.111 percent and overnight rates 
decreased to 0.113 percent from 0.116 percent.
 Euribor rates, like counterpart Libor bank-to-bank rates
, are at the centre of a manipulation scandal after it
emerged a number of banks were falsely submitting the Libor
rates they pay. 
 Dollar-priced three-month bank-to-bank Euribor lending rates
  fell to 0.911 percent from 0.923
percent, while overnight dollar rates dipped to 0.331 percent
from 0.333 percent.
 The ECB's move to stop paying interest on banks' deposits
saw almost half a trillion euros transferred from the ECB's
deposit facility to banks' current accounts last week.
 But with the monthly reserves cycle now in its stride and
fewer options available for banks to juggle their funding, the
money has started to stabilise.
 A total of 324 billion euros was parked in the ECB's deposit
facility overnight. Banks' current account deposits at the ECB
rose to 506 billion euros.
 
 Euribor rates are fixed daily by the Banking Federation of 
the European Union (FBE) shortly after 0900 GMT.
 * For a table of the latest Euribor fixings for terms of one
week to one year, double click on 
 * For a table of the previous day's fixings of EONIA swap 
rates, which show market expectations for future overnight 
lending rates, double click on 
 * For graphs of historic Euribor and EONIA swap rates, right
click on the links in angle brackets below, and select 'Related 
Graph'  
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 9 month      
 10 month    
 11 month    
 1 year       

 (Reporting by Frankfurt newsroom)
 

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