Lending interest rates between banks in Europe fell Friday but not as steeply as the benchmark rates that were cut the day before by the European Central Bank and the Bank of England.

The rate for three-month loans in euros - known as the European Interbank Offered Rate, or Euribor - fell around 0.12 percentage points to 4.47 per cent, its lowest level since March 6.

And the rate in British pounds declined around 1.07 percentage points to 4.49 per cent, its lowest level since May 2004.

The drops recorded are smaller than the 0.50 and 1.50 percentage point rate reductions announced by the European Central Bank and Bank of England respectively, and provide further evidence that credit market conditions remain abnormally tight.

lending rates

Because the interbank lending rates did not fall as much as base rates, already large spreads - one symptom of the world credit crisis - in fact widened.

The European Central Bank's benchmark rate stands at 3.25 per cent while the Bank of England's is now at a 53 year low of 3.00 per cent, meaning the Euribor spread is now at around 1.22 per cent and the British spread is nearly 1.5 per cent.

The spreads are nearly twice as large as they were in mid-September, when Lehman Brothers went bankrupt.

Before the credit crunch, widely thought to have begun in August 2007, the spread between bank lending rates and official base rates was only around 0.5 percentage points and in much calmer times was around 0.2 percentage points.

Meanwhile, the rate on three-month loans in dollars dropped 0.10 per cent to 2.29 per cent, its lowest level since November 2004, taking the spread down to 1.29 per cent given the US Federal Reserve's benchmark rate stands at 1.00 per cent.

Dollar rates have fallen for 20 straight days.

Interbank rates are important because they affect the cost of loans in the wider economy, for both businesses and individuals. They sky-rocketed in recent months as banks worried that other lenders might collapse.

- AP