In the wake of warnings by the European Central Bank (ECB) about inflation within the euro zone, the price of euro-based bank-to-bank lending rose by 1% on Friday.
Although the ECB held its interest rates steady on Thursday, Reuters reported that its strong speech regarding the increase in inflation over the next several months implied that it might raise rates sooner rather than later. In response, the Euribor rate increased. Jean-Claude Trichet, president of the ECB, had said that inflation in the zone, now standing at 2.3%, a two-year high, must be closely monitored. The ECB's mandate is to keep inflation close to, but below, 2%.
In a news conference, Trichet said, "We see evidence of short-term upward pressure on overall inflation, mainly owing to energy prices, which has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon." While the ECB left its interest rate unchanged, the Euribor reaction to the warning signaled expectations that that would not remain the status quo for long.
The three-month Euribor rate rose from 0.998% to 1.006%, its largest one-day increase since Oct. 21. While rates are not expected to rise much in the near future—Elia Lattuga, Unicredit analyst, said in a statement, "With the refi rate on hold, we don't expect big upward pressure on Euribor; it [the 3-month rate] will probably stand between 1.0 and 1.05 in the next month"—other rates also saw increases. The 6-month Euribor increased from 1.229% to 1.244%; the 12-month went from 1.513% to 1.536%; and the 1-week gained from 0.592% to 0.647%.
Lattuga said that the yield curve has steepened, but confirmed that most of the rate movement was due to Trichet's warnings at the news conference.
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