(This September 9 story refiles to removes reference to ECB official rate in para 8, clarifies para 9)
By Yoruk Bahceli
AMSTERDAM (Reuters) - The rate at which euro zone banks lend to each other for a three-month period fell to a record low on Wednesday, pressured by the abundant liquidity the ECB has unleashed across the bloc's financial system.
The European Central Bank is not expected to make policy changes at its Thurday meeting but there is speculation that euro strength and dismal inflation readings could prompt it to adopt a dovish tone and flag even more stimulus ahead.
The three-month Euribor rate fell to a record low at -0.493%, down 0.5 basis points from Tuesday and below the previous record low at -0.491% breached in August.
Graphic: Euribor falls - https://fingfx.thomsonreuters.com/gfx/mkt/oakveolwmvr/euribor.PNG
Six and twelve-month Euribor rates are also at record lows. <EURIBOR6MD=> <EURIBOR1YD=>.
"There's quite an excess of liquidity in the system, I think TLTROs helped tremendously on that" said Frank Beset, head of treasury liquidity management at Rabobank, refering to the ECB's cheap loans programme for banks.
Those have pushed the amount of commercial bank deposits held at the ECB after accounting for minimum reserve requirements to nearly 3 trillion euros.
"All major banks with collateral and access to the ECB took quite a share (of TLTROs)… I think investors are looking to allocate some term-trades there, with banks not overly happy to take extra cash, they are lowering the (Euribor) level step by step."
The liquidity torrent has pressured money market rates for several months, with three-month Euribor falling below the ECB's one-day interbank rate EONIA in August and holding there since <EONIA=>.
Analysts say that is down to banks borrowing more cheap ECB cash than they actually needed and sitting on it, meaning there is little need for them to borrow in the interbank market.
Rabobank's Beset said the level of ECB support and dovish expectations going forward means Euribor is unlikely to rise.
On Wednesday, Euribor rates fell more than Eonia which eased around 0.2 basis points, a sign that the move was due to liquidity reasons, analysts said.
(Reporting by Yoruk Bahceli, editing by Sujata Rao)