Key Euribor rates dip after Ireland rescue package

 

Key euro-priced bank-to-bank lending rates fell on Monday, a day after euro-zone finance ministers agreed on an 85 billion euro loan package for Ireland.

The three-month Euribor rate - traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending - fell to 1.027 percent from 1.028 percent as markets continued to question to what extent the ECB will scale down its lending support in the new year given debt market tensions.

Shorter-term one-week rates also fell, to 0.595 percent from 0.604 percent. Overnight rates dipped to 0.446 percent on Friday.

But six-month rates remained stable at 1.260 percent while longer-term 12-month rates inched up to 1.532 percent from 1.531 percent.

The 3-month Euribor rate broke above the European Central Bank's 1.0 percent benchmark rate last month for the first time in well over a year, marking a milestone for money markets.

Bank-to-bank 3-month lending rates traditionally sit just above the ECB's headline rate, but the ECB's tactic of lending out unlimited cash during the financial crisis had long kept them well below the benchmark rate.

At the start of the month interbank rates were around 20 percent higher than at the end of September after banks slashed their consumption of ECB funding.

The ECB held official euro zone rates at 1 percent for the 18th month running earlier this month and is expected to keep them there until late next year.

ECB President Jean-Claude Trichet has welcomed the recent improvements in money markets and said the bank would announce in December whether it plans to press on with scaling back its support measures.

ECB heavyweight Juergen Stark said earlier this month the bank would continue to phase out its support in the new year despite the recent escalation of euro zone debt tensions.