MONEY MARKETS-Euro Libor hits new low, Euribor edges up
* Three-month euro Libor rate falls to record low * Pace of interbank rate slide declines * Loose ECB policy limits scope for further falls (Recasts, adding libor, quotes) By William James LONDON/FRANKFURT, June 14 (Reuters) - The benchmark cost of lending between banks dipped to a new low on Thursday as loose European Central Bank monetary policy continues to push down rates, but the impact of any new easing was likely to be limited. Three month euro Libor fell to 0.575 percent, the lowest ever according to Reuters data going back to 1989, beating lows set earlier this week and extending a 10-month slide from levels around 1.5 percent. Money markets rates have tumbled since the ECB flooded money the banking system with over 1 trillion euros of ultra-cheap 3-year funding. But the sharp slide has slowed in recent weeks as debt crisis tensions focused on Spain and Greece have risen and overnight rates have approached the ECB's 0.25 percent deposit rate. With markets still awash with low-cost cash, the deposit rate acts as a floor for the money market as banks will only lend on open markets if borrowers are prepared to pay more than the ECB. Three-month Euribor rates, set by a larger panel of banks than Libor, rose on Thursday, inching up to 0.663 percent from 0.662 percent after they had risen for the first time in almost a month on Wednesday. Euribor remains within touching distance of a record low of 0.634 percent hit in early 2010, but clear signals of a cut in the ECB's official interest rate would need to be seen for the rate to push lower, analysts said. "If there's a very strong message suggesting that there will be a rate cut at the next meeting, I expect it will fall another 3 to 4 basis points," said Giuseppe Maraffino strategist at Barclays Capital in London. Slovak ECB policymaker Jozef Makuch said this week that he could imagine a zero deposit rate, echoing earlier comments from Austria's Ewald Nowotny. The ECB also extended its promise to supply banks with unlimited funding until the middle of January next year last week. It did not rule out supplying further longer-term cash if the benefit of its twin 3-year LTROs - which ended in February - proved not to have been enough. However, with high excess liquidity in the banking system - now at 780 billion euros according to Reuters calculations - and Euribor rates already so low, any fall was unlikely to extend much further even if the ECB cut its main refinancing rate by 25 bps. "The effectiveness of lower ECB rates per se is limited. I wouldn't expect it to bring (Euribor) rates down a full 25 bps," said one London-based analyst who declined to be named as he was not authorised to talk to the media. (Additional reporting by Frankfurt newsroom; Editing by John Stonestreet)
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