Money markets euribor rates to extend slide; ecb seen on hold

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* Euribor rates hit 16-month low; may fall to record* ECB not expected to announce liquidity, rate moves* March Euribor futures contract prices look too low -RBSBy William JamesLONDON, March 5 Euro zone interbank rates should extend their slide towards record low levels thanks to the ECB's boost to banking sector liquidity, but Thursday's central bank meeting is not expected to add to the pace of decline. After pumping 1 trillion euros of three-year loans into banks, the European Central Bank is expected to maintain its 'wait-and-see' stance towards interest rates and future cash injections at its monthly policy meeting. Until recently, many had forecast lower ECB rates to combat a slowdown caused by the euro zone's debt crisis, but those expectations have been slashed according to a Reuters poll of economists. Nevertheless, with banks' funding problems neutralised by the long-term cash and investor appetite for riskier assets increasing, Euribor rates - a gauge of interbank funding costs - look set to drop further towards all-time lows. Three-month Euribor fixed at a fresh 16-month low of 93.4 basis points on Monday. The rate has fallen every day since Dec. 19, declining by nearly 50 bps in that period.

Euribor futures showed the rate was forecast to be 82 bps at the March contract expiry on March 19. However some say the contract's value, which rises when market expect lower rates, could rally further."We like positioning for upside in March (20)12 Euribor futures," RBS strategists said in a research note."There is much more cash in the system versus the aftermath of the first three-year LTRO allotment, so the pace of Euribor decline is likely to remain lofty."

Further along the Euribor curve, rates were seen falling as low as 64 bps by September - a move which would test the record low of 63.4 bps hit in late March 2010."The trend is quite dominant and there's no sign whatsoever that the trend towards lower Euribor fixings is ending any time soon," said Kornelius Purps, strategist at Unicredit in Munich. LOW ECB EXPECTATIONS

However, the ECB was not expected to add momentum to the Euribor slide by cutting rates or announcing fresh plans to boost banking liquidity."There is currently no need or pressure to come up with a cut in key interest rates and I do not expect any announcement in terms of special tenders," Purps said."We have the two (three-year ECB ) tenders out now, and markets have calmed down considerably."Analysts expected the central bank to highlight signs of a stabilising, albeit weak, economic outlook to keep rates at 1 percent. In addition the risk of higher inflation than previously expected had grown due to a spike in oil prices. JPMorgan and Royal Bank of Scotland economists have revised their forecasts to a 'no change' from the ECB on interest rates, having previously forecast a 25 basis point cut."For the money markets there isn't any strong event risk," said Simon Smith, chief economist at FxPro in London.