Euro Libor rates mark new lows

Friday, August 28, 2009

LONDON: The interbank cost of borrowing euros hit new lows on Thursday with liquidity still abundant, but data showed money was still not reaching the real economy and central bankers continued to warn of an uncertain outlook. Benchmark sterling and dollar rates also marked new lows, with the latter remaining below equivalent yen rates, a market anomaly seen this week for the first time in 16 years.

Despite around 160 billion euros of excess liquidity in the system, loans to eurozone households and businesses fell in July to record their slowest annual growth ever, the European Central Bank said on Thursday. "The key thing is that there is little sign that the ECB's liquidity provisions are encouraging banks to lend to the wider economy," said Ben May, an economist at Capital Economics.

Meanwhile, ECB Governing Council member Mario Draghi was the latest central banker to sound a cautionary note, saying the global financial and economic crisis is easing but the outlook remained uncertain. His comments echo those of other policymakers in recent days, which have supported government bonds and interest rate futures in the eurozone.

"There doesn't appear to be any final demand behind the positive indicators we're seeing, it's more an inventory cycle thing going on at the moment," said Nordea's chief analyst Niels From.

Benchmark three-month euro Libor rates were almost a basis point lower at 0.8025 percent, with the dollar equivalent just over a basis point lower at 0.36036 percent. The premium that dollar Libor trades over a risk-free benchmark, Overnight Index Swap rates - a gauge of stress in the banking sector - fell to 18 basis points, a level seen in August 2007 just as the credit crisis erupted.

(Reuters)

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