July 2, 2012 / 9:21 AM / 5 years ago

Euribor rates ease as ECB rate cut expectations grow

FRANKFURT, July 2 (Reuters) - Key euro zone bank-to-bank
lending rates eased further on Monday as expectations for the
European Central Bank to cut interest rates this week gained
traction.
    The ECB meets on Thursday to decide on the euro zone's
interest rates and 48 out of 71 economists in a Reuters poll
expect the bank to cut rates below the current record low of 1.0
percent. 
    An important question is whether the bank will also cut its
overnight deposit rate, now at 0.25 percent. The rate is
currently acting as a floor for money market rates and cutting
it would give bank-to-bank rates further room to fall.
    Three-month Euribor rates, traditionally the
main gauge of bank-to-bank lending, inched lower on Monday to
0.652 percent from 0.653 percent.
    Other key rates also fell. Six-month Euribor rates
 fell to 0.928 percent from 0.930 percent and
shorter-term one week rates fell to 0.321 percent
from 0.323 percent. 
    Overnight rates rose to 0.382 percent from 0.331
percent as banks prepared for the end of the second quarter of
the year.
    Dollar-priced three-month bank-to-bank Euribor lending rates
  edged up to 0.984 percent from 0.975
percent, while overnight dollar rates fell to 0.344
percent from 0.350 percent.
    ECB policymakers have given fresh hints in recent days that
the bank could cut interest rates, a move that would open up
room for a further drop in market rates. 
    "There is no doctrine that interest rates cannot fall below
1 percent," ECB chief economist Peter Praet was quoted as saying
last week. "They (rate cuts) are justified if they contribute to
guaranteeing price stability in the medium term." 
    The sharp fall in euro-priced interbank rates over the last
half-year has brought benchmark euro-priced three-month rates to
within touching distance of a record low of 0.634 percent hit in
early 2010.
    High excess liquidity in the banking system - now at 783
billion euros according to Reuters calculations -
has led to heavy use of the ECB's overnight deposit facility,
where banks parked 773 billion euros overnight. Before the
financial crisis, the amounts were minimal.
    
    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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 (Reporting by Frankfurt newsroom)

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