why the EUR fall after 8:45am today

The European Central Bank rewidened its interest rate corridor on Thursday and cut the return it gives banks for holding cash at the ECB as it bids to prod interbank money markets back to normality.

In a statement after its mid-month non-rate policy meeting, the bank's governing council also said it would carry on lending commercial banks as much money as they wanted for as long as necessary.

"As of 21 January, the rate of the marginal lending facility will be increased from 50 to 100 basis points above the interest rate of the main refinancing operation," the ECB said in a statement.

"The rate of the deposit facility will be reduced from 50 to 100 basis points below the rate of the main refinancing operation."

The move is designed to push banks back into interbank lending and wean them off the habit of hoarding cash at its overnight facility.

"After trying moral persuasion, the ECB has now moved on to cutting the deposit rate to try and revive the inter bank market." said RBS analyst Jacques Cailloux.

"A much more drastic response if the interbank market does not revive would be the setting up of a clearing house."

Analysts from Bank of New York said that the move also looked like a response to investors' jump into euros since the U.S. Federal Reserve cut its own interest rates on Tuesday.

"The ECB is obviously fighting the surge of cash out of USD deposits into EUR deposits since the Fed's surprise rate cut," Bank of New York said in a snap note to clients.

"Demand for EUR deposits has soared as ECB rates are now the highest within the G7. The move out of USD deposits is all the more painful for the ECB as the EUR has surged in value against the USD as well as other major currencies."

Overnight deposits at the ECB have jumped since mid-October when it started offering banks unlimited cash and halved the gap between its main and deposit rates. They topped 200 billion euros on Thursday, having reached almost 300 billion last month.

Jittery banks have been borrowing from the ECB's weekly and longer term refinancing tenders to ensure they do not run short of cash, but instead of lending spare funds to rivals as they would normally do, they lodge it back with the ECB.

The ECB added that it would also extend measures brought in in October to calm bank funding fears.

"The main refinancing operations will continue to be carried out through a fixed rate tender procedure with full allotment beyond the maintenance period ending on 20 January 2009."

"This measure will be in place for as long as needed, and at least until the last allotment of the third maintenance period in 2009 on 31 March."