FRANKFURT: Key euro zone three-month bank-to-bank lending rates edged towards all-time lows today, pulled down by the huge amount of excess cash created by the European Central Bank's recent unprecedented injections of long-term liquidity.
The ECB, which kept euro zone interest rates at 1.0 per cent again this month, has poured more than 1 trillion euros of ultra-cheap, three-year funds into the banking system since the end of last year, halving interbank rates in the process.
Three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, fell further, hitting a new two-year low of 0.685 per cent from 0.687 per cent.
Six-month rates eased to 0.974 per cent from 0.975 per cent. Shorter-term one-week rates hovered near all time lows, edging up to 0.318 per cent from 0.317 per cent.
Overnight rates fell to 0.340 per cent from 0.346 per cent.
Dollar-priced bank-to-bank Euribor lending rates were mixed. Three-month rates rose to 0.937 per cent from 0.921 per cent while overnight rates remained unchanged at 0.316 per cent.
The sharp fall in interbank rates over the last few months has brought benchmark euro-priced three-month rates within touching distance of the euro-era low of 0.634 per cent hit in early 2010.
The 0.25 per cent the ECB offers banks for overnight deposits continues to act as a floor for money market rates as banks know they can get that level of interest no matter what.
High excess liquidity in the banking system has led to heavy use of the ECB's overnight deposit facility, where banks parked 788 billion euros overnight. In normal times the amounts are minimal.
Euribor rates are fixed daily by the Banking Federation of the European Union (FBE) shortly after 0900 GMT.
