Interbank lending rates remained pinned on Monday by the abundance of excess cash in the system but comments from a host of central bankers are likely to be closely scrutinised for further clues on exit strategies.
Major central banks have begun to talk about withdrawing some of the extraordinary measures that have pumped banks full of cash since over the last year.
But exactly when and how this might happen remains unclear and analysts are not convinced it will happen any time soon.
The banks are still vulnerable, lending is still weak and there's going to be a reluctance to withdraw the support...at a time when balance sheets are still damaged and there's no apparent risks from continued substantial support, said ICAP economist Don Smith.
European Central Bank Governing Council member Axel Weber said on Monday that missing the right moment for the exit from extraordinary policy steps to combat the financial crisis carried the risk of creating new turbulence. Meanwhile, fellow Council member Miguel Angel Fernandez Ordonez said a rate hike was not on the radar but the ECB's support must be taken away when the time was right or normal service in money markets would never resume. The ECB is seen keeping euro zone interest rates at 1 percent until the end of the third quarter of next year but it has indicated it will start to detail exit plans in December.
Although the ECB is under no pressure to hike the refi rate...the central bank is increasingly feeling the need to regain control of market interest rates via a progressive mopping up of excess liquidity, said UniCredit's chief euro zone economist, Aurelio Maccario.
Maccario said the only way the ECB could regain control was by waiting until excess liquidity declined significantly from current levels and the current method of full allotment at money market operations was no longer in place.
Excess liquidity is currently around 75 billion euros, with 54 billion euros of that parked back at the ECB over the weekend. The Eonia EONIA= overnight rate fixed at 0.356 percent, compared with 0.343 percent the previous session.
Three-month euro Libor rates EUR3FSR= were unchanged at 0.67125 percent.
BERNANKE CENTRE STAGE IN U.S.
Federal Reserve officials are out in force later on Monday.
Chairman Ben Bernanke speaks on the economic outlook at 1715 GMT.
The U.S. central bank has also indicated that monetary policy is likely to remain accommodative well into next year, but that the tools for shifting gear were being explored.
Three-month dollar Libor rates USD3MFSR= marked a new low at 0.27125 percent. Equivalent sterling rates GBP3MFSR= were up fractionally at 0.61406 percent.
Minutes of the Bank of England's last policy meeting are released on Wednesday after it opted to increase its quantitative easing programme by 25 billion pounds.
The minutes will be important to understand if the BoE decided to increase the programme by only 25 billion because the board is split or because it preferred to adopt a gradual approach in increasing the gilt purchase, UniCredit strategists said.