Key Euribor rate falls as pressure grows on ECB to act

Wed Feb 5, 2014 5:52am EST

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FRANKFURT, Feb 5 (Reuters) - The key euro-priced
bank-to-bank lending rate fell on Wednesday after a slowdown in
inflation and an expected fall in excess liquidity fed
expectations that the European Central Bank may take fresh
policy action.
    Euro zone inflation eased to 0.7 percent last month,
slipping far below the ECB's target of just under 2 percent. The
drop fuelled expectations the ECB may take action at its policy
meeting on Thursday or next month. 
    Meanwhile, excess liquidity, or the amount of money banks
have beyond what they need for their day-to-day operations is
expected to hit levels that last month sparked volatility in
interbank lending rates. 
    Excess liquidity stood at 187 billion euros
before the settlement of two ECB operations that are expected to
take it down by another 44 billion euros. 
    An "unwarranted" tightening of short-term money markets was
one scenario ECB President Mario Draghi set out after the
January meeting that could trigger policy action. The other was
a deterioration in the medium-term inflation outlook.
    The vast majority of 24 traders polled by Reuters said they
did not expect the ECB to take its refinancing rate lower than
the current 0.25 percent on Thursday or make any moves that
could increase money supply and boost inflation. 
    The three-month Euribor rate, traditionally
the main gauge of unsecured bank-to-bank lending, fell for the
sixth session in a row, to 0.287 percent from 0.288 percent.
    The six-month Euribor rate decreased to 0.386
percent from 0.387 percent while the shorter-term one-week rate
 rose to 0.189 percent from 0.182 percent.
    The EONIA overnight lending rate fell to 0.133
percent on Tuesday from 0.140 percent on Monday.
    Spikes in overnight lending rates earlier this year had put
pressure on the ECB to step in and curb the rise, which if it
happens too quickly could even derail the recovery.
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
    For a package of graphics on the ECB, click on:     
    link.reuters.com/neg32s   
    For graphic of euro zone liquidity levels click:       
    link.reuters.com/qeq25s 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
    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'  
    1 week       
    2 week       
    1 month      
    2 month      
    3 month      
    6 month      
    9 month      
    1 year       

 (Reporting by Frankfurt newsroom)
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