PRODUCT PROFILE

Latest Dublin Prices

Inter-bank rates unmoved after ECB

Friday, August 03 10:57:05

The euro zone's key bank-to-bank lending rate remained at an all-time low today, with further falls now capped after the ECB's president raised doubts about the prospect of pushing the deposit rate into negative territory.

ECB President Mario Draghi's comments on Thursday increased expectations the bank could cut rates below the current record low of 0.75 percent, but, at the same time tempered expectations of the central bank starting to charge banks for depositing funds with the ECB overnight.

"On the negative deposit rates," Draghi said in a post-rate decision news conference, "I will say only that for us these are largely unchartered waters."

The ECB's overnight deposit rate, which it cut to zero on July 5, acts as a floor for money market rates as banks only lend to rival banks if they are able to earn a better rate of interest than at the central bank.

The ECB hopes its unprecedented move will nurture a return of more significant interbank lending by forcing banks to look for more profitable options.

Three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, remained at 0.375 percent.

Other key rates rose slightly. Six-month Euribor rates ticked up to 0.659 percent from 0.657 percent and shorter-term one-week rates increased to 0.097 percent from 0.096 percent while overnight rates eased to 0.109 percent from 0.112 percent. Euribor rates, like counterpart Libor bank-to-bank rates , are at the centre of a manipulation scandal after it emerged a number of banks were falsely submitting the Libor rates they pay.

Dollar-priced three-month bank-to-bank Euribor lending rates fell to 0.862 percent from 0.874 percent, while overnight dollar rates inched down to 0.330 percent from 0.331 percent. The ECB's move to stop paying interest on banks' deposits saw almost half a trillion euros transferred from the ECB's deposit facility to the bank's current account. (C ) Reuters