November 26, 2012 / 10:27 AM / in 5 years

Euribor rates dip but year-long decline fading

FRANKFURT, Nov 26 (Reuters) - Key Euribor bank-to-bank
lending rates dipped on Monday after holding steady for three
sessions, with the pace of their fall slowing as a year-long
downtrend under the weight of excess liquidity in money markets
fades.
    Bank-to-bank lending rates have fallen sharply since last
November when European Central Bank plans emerged to flood the
banking system with ultra-cheap, three-year cash. 
    But the impact of the excess liquidity has now been largely
priced in and there is uncertainty about whether the ECB will
cut interest rates further, helping keep rates steady.
    Three-month Euribor rates, traditionally the
main gauge of unsecured bank-to-bank lending, dipped to 0.189
percent from 0.190 percent.
    The six-month rate also inched lower to 0.349 percent from
0.351 percent and the one-week rate held steady at
0.077 percent. The overnight Eonia rate edged up to
0.074 percent from 0.071 percent.
    Dollar-priced bank-to-bank Euribor lending rates
  were mixed, with three-month rates
down at 0.60231 percent from 0.60385 percent and one-week rates
remaining unchanged at 0.35154 percent.
    The ECB's decision in July to stop paying interest on
overnight deposits paved the way for further declines in
euro-denominated rates by removing the 0.25 percent floor for
the money market.
    The amount of excess cash in the euro zone banking system is
still extremely high at 634 billion euros, according to Reuters
calculations.
    With that figure set to remain high for the foreseeable
future, money market experts have focused on whether the ECB
could copy Denmark's example and start charging banks to deposit
cash overnight.
    Policymakers showed initial interest in the idea but some
have since expressed reservations. Governing Council member
Ewald Nowotny said last month a negative deposit rate was not
realistic.  
    Asked about the idea earlier this month, Draghi said: "We
haven't discussed (that)."
    
    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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($1 = 0.7867 euros)

 (Reporting by Frankfurt newsroom)

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