MONEY MARKETS-Euro Libor hits new low, Euribor edges up

Thu Jun 14, 2012 8:49am EDT

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* 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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