Mecklai graph of the Day: 3 month Euribor at record low

European crisis occupied the center stage in recent time. It can be seen in the below graph that Euro zone bank-to-bank lending rates hit new all-time low today. In last week, ECB cut the interest rates by 0.25% to 0.75% and the deposit rate to zero. The immediate impact was seen on the deposit front where the banks reduced deposits with the ECB to the lowest level in seven months.

On Wednesday, the Overnight deposits fell by 60 % to € 324.9 billion from€ 808.5 billion the previous day - the lowest level since December 21, 2011 ss banks will now get nothing if they park their spare cash with the central bank. This move by the ECB will induce interbank lending by forcing banks to look for more profitable options. Taking into consideration the inflation level, parking money with the Central bank will yield a negative return on the deposits thus, eroding the present value of money deposited. The current Euribor indicates that banks which were reluctant to lend money to each other on the back of mutual distrust are likely to ease out. Can we expect some improvement in liquidity and credit off takes in the market?

The below graph depicts movement in 3-Month Euribor rate for last 1 year.

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