Libor Rates to Rise Again as ECB Fund Winds Down, Barclays Analysts Say

The rate banks say they pay for three-month dollar loans may rise as a European Central Bank rescue fund winds down, analysts at Barclays Capital said.

The London interbank offered rate, or Libor, has remained steady near 0.54 percent since late May, after rising from 0.25 basis points in early March, according to data compiled by Bloomberg.

“The recent period of calm in three-month Libor could be coming to an abrupt end with rates potentially moving toward 75 basis points before settling close to 60 basis points or so,” analysts led by Joseph Abate in New York wrote in a note to clients yesterday.

The ECB’s first and largest long-term refinancing operation will expire July 1, according to Abate. The central bank will replace the one-year funding with a three-month program, prompting banks to seek alternative funding for as much as 150 billion euros ($185 billion), according to Barclays.

Banks have lodged 465 billion euros with the ECB through monetary operations, including 170 billion euros in the main refinancing operation. They pledged 468 billion euros of bonds as collateral for ECB loans last year, up from about 441 billion euros in 2008.

To contact the reporter on this story: Karen Eeuwens in London keeuwens@bloomberg.net.

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