Euribor rates fall ahead of ECB policy meeting

FRANKFURT, Feb 9 (Reuters) - Euro priced bank-to-bank
lending rates continued to fall on Thursday helped by the
prospect of more excess liquidity later this month and ahead of
the European Central Bank's policy meeting.
The ECB is expected to keep rates at a record low of 1
percent on Thursday but may give a steer on future moves.
Having injected almost half a trillion euros into the
banking system with its first ultra-cheap 3-year loans in
December, which pushed excess liquidity to record levels, the
ECB will give banks a second chance on Feb. 29.
With banks already awash with long-term funds and
expectations of the uptake for the next round as high as 1
trillion euros, downward pressure on lending rates in the money
market is intense.
Three-month Euribor rates, traditionally the
main gauge of unsecured interbank euro lending and a mix of
interest rate expectations and banks' appetite for lending, fell
to 1.070 percent from 1.077 percent, hitting the lowest level
since late January last year.
Rates in other maturities also dropped. Six-month rates
fell to 1.370 percent from 1.377 percent, while
1onger-term 12-month rates dropped to 1.702
percent from 1.710 percent.
One-week rates, the most heavily influenced by
excess liquidity which now stands at 484 billion euros according
to Reuters calculations, fell to 0.375 percent from 0.379
percent. Overnight rates inched down to 0.362 percent
from 0.367 percent the previous day.
While it is still not completely clear whether the money
from December's 3-year ECB loan operation is filtering through
to companies and consumers, ECB President Mario Draghi said the
move had avoided "a major, major credit crunch".
The cash is, however, having a clear positive impact on both
the money market and euro zone bond markets. Spain and France
enjoyed a blast of positive investor sentiment on the back of
the money last week with borrowing costs falling for both.
Money market experts also report that some banks are now
prepared to lend to some of their peers for as long as three
months, a marked improvement on last month when even month-long
loans were hard to come by in the open market.
And while some market players are expecting further
long-term loan offerings down the line considering the success
of the measure, a top ECB official trashed such hopes by saying
bank liquidity concerns had all but disappeared.
With high amounts of excess liquidity in the system, banks
are depositing much of the extra cash back at the ECB.
Overnight deposits at the ECB hit a record high of 528
billion euros at the peak of the ECB's last reserves period and
currently stand at a still-hefty 495 billion euros.
Short-term market rates are well below the bank's main 1
percent policy rate due to the excess cash. Its 0.25 percent
overnight deposit rate is acting as a floor for money markets.

Euribor rates are fixed daily by the Banking Federation of
the European Union (FBE) shortly after 1000 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 Anna Willard)