Three-Month Euro Libor Declines for First Time in Almost a Month, BBA Says

The interest rate banks say they pay for three-month loans in euros in London fell for the first time in a month, data from the British Bankers’ Association showed.

The London interbank offered rate, or Libor, for such loans was at 0.774 percent, the BBA said today. The rate was 0.775 percent yesterday, the highest since Sept. 3, 2009.

The drop, the first since June 11, breaks a streak of 23 working days. Borrowing costs had been rising after banks tapped the European Central Bank for less funding than some analysts had expected before paying back a 442 billion-euro ($562 billion) ECB 12-month loan on July 1. That reduced excess liquidity in money markets.

“The lower fixing is marginal after a long run of increases,” said Christoph Rieger, co-head of interest-rate strategy at Commerzbank AG in Frankfurt. “I wouldn’t read too much into it. The trajectory should stay towards higher fixings.”

Three-month Euribor rose to 0.84 percent today, the most since Aug. 24, 2009, from 0.835 percent yesterday, according to data from the European Banking Federation. The rate may continue to “move closer to the ECB’s refinancing rate at 1 percent,” Commerzbank’s Rieger said.

“There’s a change in liquidity conditions, and more banks are looking to fund their inventory in the market instead of at the ECB, and that’s pulling rates up,” Rieger said.

ECB President Jean-Claude Trichet said July 8 that the rising cost of money doesn’t reflect any intention by the central bank to tighten policy.

“It would be a complete mistake to interpret what we observe in the market as a monetary policy signal,” Trichet said at a press conference in Frankfurt after the ECB left the main refinancing rate at a record low 1 percent. Higher borrowing costs are “the consequence of the decision of the banks themselves at the moment of renewal of their previous financing to ask for less than they could have done.”

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net

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