May 30, 2012 / 10:13 AM / 5 years ago

UPDATE 1-ECB rate cut hopes push Euribor to 2-yr lows

(Adds shorter-term rates, background)	
    FRANKFURT, May 30 (Reuters) - Key euro zone bank-to-bank
lending rates fell to two-year lows on Wednesday, pushed down by
a growing belief the ECB will have to cut interest rates to help
shore up a banking system that is creaking at the seams.	
    The European Central Bank, which kept euro zone rates at 1.0
percent again this month, poured more than 1
trillion euros ($1.25 trillion) of ultra-cheap, three-year funds
into commercial banks in December and February.	
    Those injections of long-term funding (LTROs) halved
interbank lending rates, and the banking system is still awash
with high levels of excess liquidity. 	
    Markets do not expect a third LTRO any time soon, but have
in recent days started placing bets on a rate cut following a
run of poor data and mounting evidence that the financial
systems in Spain and Greece are close to seizing up.
  	
     Many economists now expect at least one 0.25 percentage
point cut in the coming months, possibly as early as next week.
(click )	
    Having experienced a near-vertical six-month drop,
three-month Euribor rates, traditionally the main
gauge of unsecured interbank euro lending, continued their
slide, to 0.671 percent from 0.673 percent.	
    Six-month Euribor rates also hit new two-year
lows, dropping to 0.949 percent from 0.951 percent. One-year
rates fell to 1.237 percent from 1.240 p e rcent.	
    One-week rates ticked down to 0.317 percent
from 0.319 percent, while overnight rates rose to 0.335
percent.	
    Dollar-priced bank-to-bank Euribor lending rates were mixed
. Three-month rates rose to 0.922
percent from 0.919 percent while overnight rates 
remained at 0.312 percent.	
    The sharp fall in interbank rates over the last half a year
has brought benchmark euro-priced three-month rates to within
touching distance of the euro-era low of 0.634 percent hit in
early 2010.	
    The 0.25 percent the ECB offers banks for overnight deposits
continues to act as a floor for money market rates as banks know
they can get that level of interest no matter what.  	
    High excess liquidity in the banking system has
led to heavy use of the ECB's overnight deposit facility, where
banks parked 760 billion euros overnight. In normal times the
amounts are minimal.	
    The ECB will also announce on June 6 for how long it plans
to extend the arrangement where commercial banks can borrow as
much as they want at its lending operations. A Reuters poll on
Monday showed the majority of traders expect an extension of
more than a year. 	
   	
    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; Editing by John Stonestreet)

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