* Euribor, euro Libor both fall, seen sinking further* ECB rate cut expectations stoked by Coeure commentsBy William JamesLONDON/FRANKFURT, June 21 A growing conviction that the European Central Bank will cut interest rates pushed interbank borrowing costs lower on Thursday, with markets pricing in a slide to record lows. Three-month Euribor rates, traditionally the main gauge of bank-to-bank lending and a proxy for the direction in which the ECB's refinancing rate is headed, eased to 0.655 percent from 0.657 percent. The interbank market is awash with cash injected by the ECB, depressing Euribor rates to within 2 basis points of their lows but analysts expect rate cut speculation to drive rates lower before the next policy meeting on July 5.
The euro zone's struggling economy is putting additional stress on countries struggling with a debt crisis that currently threatens Spain's ability to raise funds from the market and is piling pressure on the ECB to act."I can't see the world changing sufficiently to derail market belief that the ECB will provide another cut," said Eric Wand, strategist at Lloyds Bank in London."Put it this way, if the ECB stays where it is, the market would take it pretty badly. It seems like a cut is in the offing."
The euro-denominated Euribor rates pushed lower after fresh hints from ECB policymakers that the bank's deposit rate could be cut, a move that would open up room for a further drop in market rates. Banks will only lend in the open market if borrowers are prepared to pay more than the ECB. ECB Executive Board member Benoit Coeure said on Wednesday in an interview with the Financial Times that rate cuts remained an option and would probably be discussed at the next meeting, but that any move would not be a cure-all.
Euribor futures edged higher with contracts dated out to the end of the year rising by around two ticks. Prices imply Euribor falling below the record of 63.4 bps by next month, reaching as low as 51 bps by December. Three-month euro Libor, fixed by a smaller panel of banks based in London, also fell to set a new low at 0.56479 percent. Technical analysis by Futurestechs showed the outlook for the March 2013 contract, currently trading at 98.465, was bullish and protected by solid support around 9 9 .34 - a rising trendline between recent lows. Expectations of a cut to the ECB deposit rate - the amount of interest paid on cash parked overnight at the bank - were reflected in the market for fixed-term Eonia. Lending at a fixed-term Eonia rate for anything longer than two months requires offering a price below the 25 basis points currently on offer at the ECB. The three-month Eonia rate was last at 21 bps.
* Money market curve shifts higher after ECB rates unchanged* Lack of more-dovish signals pushes some to close positions* LTRO repayments eyed for fresh guidance on liquidity drainBy William JamesLONDON, March 7 Interbank borrowing rates inched higher on Thursday as traders who had positioned for the European Central Bank to signal fresh monetary easing found little support from the bank's monthly news conference. Money market rates rose slightly as those who had wagered that Italy's electoral crisis and worsening economic data could push the central bank to signal rate cuts in the near future, looked to close out their positions.
A small minority of banks had forecast the ECB would cut rates in March, but the central bank said its main charge on borrowing would remain unchanged at 0.75 percent. The subsequent news conference offered little in the way of new signs the ECB was preparing to lowering borrowing rates."It seems the markets have been caught a bit on the wrong foot," said Anders Svendsen, chief analyst at Nordea in Copenhagen. "All in all, Draghi remains dovish but more weakness is needed to make the ECB cut rates."One-year fixed term Eonia rates, which reflect the expected average cost of overnight borrowing over the life of the contract, rose by around 2 basis points to 9.5 bps.
Similarly, forward Eonia rates rose and Euribor futures <0#FEI:> fell - both indications that borrowing costs in the wholesale money markets which underpin lending rates throughout the economy, will be slightly higher than expected. However, the limited scale of the moves shows both that expectations of fresh signals had been modest going into the meeting, and that the central bank had not ruled out a cut in the future.
"The reaction in Eonia is, given how much had built up in previous weeks, still relatively moderate," said Benjamin Schroeder, strategist at Commerzbank. "Draghi left the door open (for a rate cut) here, he certainly didn't close it."Gauging the exact level of rate cut expectations is complicated by the huge weight of excess liquidity in the eurosystem, which pushes short-term borrowing costs artificially lower. This makes it hard to distinguish whether moves in money market rates reflect anticipated changes in the level of liquidity or in the market's expectations on the timing of ECB rate moves. Market participants looking to trade short-term rates will look closely at data due from the ECB on Friday on how much liquidity banks will return to the central bank, in an effort to determine the speed at which cash surpluses will fall. A Reuters poll on Monday showed traders expect repayments worth 8 billion euros, adding to the 225 billion euros repaid since the three-year loans became eligible for return in January.