Key euro lending rates between banks in Europe fell slightly Monday, offering a hint that credit market conditions might improve after governments and central banks announced large-scale plans to put taxpayer money into banks and rescue the financial sector.
The interbank lending rate for three-month euro loans, known as the Euro Interbank Offered Rate, or Euribor, fell 0.063 percentage points to 5.318 percent on Monday from Friday as confidence in the banking sector rose.
"The financial rescue plans are an important watershed," said John Higgins, an analyst at Capital Economics in London.
Higgins noted the improvement in credit markets today was not dramatic, but said that was because markets are still coming to terms with the drip-feed of information about European governments' various plans.
The three-month euribor remains well above the euro zone's benchmark rate of 3.75 percent set by the European Central Bank, meaning the credit freeze is far from thawed. Usually Euribor is only a few tenths of a percentage point above the ECB rate.
"We'll need to see what interbank rates do over the next week," Higgins said. "We expect them to continue to head lower."
Banks have been fearful of lending to one another out of concern other banks may collapse. The reluctance means it is harder for businesses and consumers to get credit, which could make the economic woes from the financial crisis even worse.
Another key rate fell slightly. The London Interbank Offered Rate, or Libor, for three-month dollar loans fell 0.07 percent to 4.75 percent.
European governments announced Sunday night they were drafting plans to guarantee interbank lending and will consider taking stakes in banks in order to recapitalize the troubled sector. The plan, which some reports said will cost over a trillion euros (dollars), came on top of an announcement by major central banks, including the European Central Bank, to provide banks with unlimited short-term dollar loans.
The efforts aim to kick start the credit markets back into life. Analysts warn the proof of the plan will be in how it is executed.
"The size and nature of the national plans suggest that they could finally make a difference," but "the proof will be in the implementation," said Holger Schmieding, economist at Bank of America.
"We expect no quick fix," he said.
