November 14, 2012 / 10:33 AM / 5 years ago

Euribor rates dip again on liquidity glut

FRANKFURT, Nov 14 (Reuters) - Key Euribor bank-to-bank
lending rates dipped on Wednesday, resuming their drift lower
under the weight of excess liquidity in the banking system after
holding steady a day earlier.
    Euribor rates have been showing signs of stabilising this
month as the impact of the excess liquidity has been largely
priced in and due to uncertainty about whether the European
Central Bank will cut interest rates further.
    Bank-to-bank lending rates have fallen sharply since last
November when European Central Bank plans emerged to flood the
banking system with ultra-cheap, three-year cash. 
    The ECB has also maintained interest rates at a record low
of 0.75 percent, and ECB President Mario Draghi, speaking after
a policy meeting last week, declined to comment when asked
whether markets were right to expect a cut next month.
 
    Three-month Euribor rates, traditionally the
main gauge of unsecured bank-to-bank lending, eased slightly on
Wednesday to 0.191 percent from 0.192 percent. The 3-month rate
has begun to find some support just below 2 percent this month.
    The six-month rate dipped to 0.358 percent from 0.361
percent but the one-week rate was unchanged at
0.078 percent. The overnight Eonia rate dipped to 0.80
percent from 0.082 percent.
    Dollar-priced bank-to-bank Euribor lending rates
  were mixed, with three-month rates
falling to 0.59385 percent from 0.59538 percent and one-week
rates unchanged at 0.30000 percent.
    The ECB's decision in July to stop paying interest on
overnight deposits paved the way for further declines in
euro-denominated rates by removing the 0.25 percent floor for
the money market.
    The amount of excess cash in the euro zone banking system is
extremely high at about 673 billion euros ($855 billion),
according to Reuters calculations.
    With that figure set to remain high for the foreseeable
future, money market experts have focused on whether the ECB
could copy Denmark's example and start charging banks to deposit
cash overnight. 
    Policymakers showed initial interest in the idea but some
have since expressed reservations. Governing Council member
Ewald Nowotny said last month a negative deposit rate was not
realistic.  
    Asked about the idea last Thursday, Draghi said: "We haven't
discussed (that)."
    
    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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($1 = 0.7867 euros)

 (Reporting by Frankfurt newsroom; Editing by Ruth Pitchford)

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