July 6, 2012 / 3:59 PM / 7 years ago

UPDATE 1-Euribor follows ECB policy rates to record lows

(Adds analyst, detail)
    FRANKFURT, July 6 (Reuters) - Key euro zone bank-to-bank
lending rates plunged to their lowest levels on record on Friday
in the wake of the European Central Bank cutting euro zone
interest rates, but analysts said the moves had failed to
reignite money markets.
    The central bank cut the bloc's main interest rate to 0.75
percent and the deposit rate - the amount banks earn when they
park their excess cash at the ECB - to zero.
    The overnight deposit rate also 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 ECB. 
    Cutting the rate to zero is an unprecedented move and one
the ECB hopes will nurture a return of more significant
interbank lending, which could then allow increased lending to
firms and households.
    But analysts warned that zero rates might hamper
money-market functioning as banks' operating costs could exceed
short-term interest rates. 
    Moreover, there are doubts whether an interest rate cut was
enough to improve markets, especially in the hard-hit southern
Europe.
    "The ECB rate cut has failed to produce a meaningful
turn-around in market dynamics," Lena Komileva of G+ Economics
said.
    "If anything, it has increased monetary divergence between
the core and the periphery within the euro zone, which poses
questions about the ability of fiscal policy to bridge the gap."
    Three-month Euribor rates, traditionally the
main gauge of bank-to-bank lending, saw its biggest fall on
record to hit an all time low of 0.549 percent, down from 0.641
percent.
    Other key rates saw similar drops. Six-month Euribor rates
 fell to 0.831 percent from 0.920 percent,
shorter-term one week rates fell to 0.208 percent
from 0.313 percent, while overnight rates which do not
yet factor in the benefit of the cut, inched down to 0.332
percent.
    Counterpart Libor bank-to-bank rates, which are
currently at the centre of a manipulation scandal after it
emerged a number of banks were falsely submitting the rates they
pay to the committee that aggregates the data, also fell to
record-lows. 
    Three-month euro-priced Libor rates fell to 0.445 percent
from 0.547 percent the previous day, while the one-year rates
fell to 1.085 percent from 1.183 percent.
    Dollar-priced three-month bank-to-bank Euribor lending rates
  saw less dramatic falls, edging down
to 0.991 percent from 0.996 percent, the overnight rates climbed
to 0.344 percent. 
    
    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 Sakari Suoninen and Emelia Sithole-Matarise;
Editing by Toby Chopra)
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