Euribor rates fall ahead of ECB rate decision

Thu Jul 5, 2012 5:11am EDT

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FRANKFURT, July 5 (Reuters) - Key euro zone bank-to-bank
lending rates fell to their lowest level in more than two years
on Thursday, hours before the European Central Bank is expected
to announce a cut in its policy rates.
    The ECB meets on Thursday to decide on the euro zone's
interest rates and 48 out of 71 economists in a Reuters poll
expect the bank to cut rates below the current record low of 1.0
percent. 
    A key question for short-term market interest rates is
whether the bank will also cut its overnight deposit rate, now
at 0.25 percent. The rate is acting as a floor for money market
rates and cutting it would give bank-to-bank rates further room
to fall.
    Three-month Euribor rates, traditionally the
main gauge of bank-to-bank lending, fell to 0.641 percent from
0.645 percent, hitting the lowest since April 2010.
    Other key rates also decreased. Six-month Euribor rates
 fell to 0.920 percent from 0.923 percent and
shorter-term one week rates dipped to 0.313
percent from 0.317 percent. Overnight rates remained at
0.332 percent.
    Euribor, like counterpart Libor bank-to-bank rates,
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. 
    Dollar-priced three-month bank-to-bank Euribor lending rates
  edged up to 0.996 percent from 0.991
percent. 
    ECB policymakers have given fresh hints in recent days that
the bank could cut interest rates, a move that would open up
room for a further drop in market rates. 
    "There is no doctrine that interest rates cannot fall below
1 percent," ECB chief economist Peter Praet said last week. 
    High excess liquidity in the banking system - now at 777
billion euros according to Reuters calculations -
also puts downward pressure on market rates.
    The sharp fall in euro-priced interbank rates over the last
half-year has brought benchmark euro-priced three-month rates to
within touching distance of a record low of 0.634 percent hit in
early 2010.
    
    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)
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