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Money markets short term rates rise after ecb praets comments


´╗┐LONDON Dec 12 Short-term money market rates rose on Wednesday as traders lowered expectations of further monetary easing by the European Central Bank after its chief economist said there was limited room for further cuts. Eonia forward contracts, used to speculate on where overnight lending rates will be at specific point in the future, broadly reversed the fall into negative territory seen after last week's ECB meeting. The rate on contracts dated from March next year through to July rose fractionally back above zero as traders reacted to comments from the ECB's Peter Praet. August contracts remained in negative territory. Praet said there was little room to cut the main lending rate below the current record low of 0.75 percent and cautioned over the effects of a cut below zero on the rate the central bank currently pays on deposits.

Those comments dashed expectations of a negative deposit rate which had built up after ECB President Mario Draghi said a depo rate cut had been discussed by the governing council and the bank was operationally ready for such a move.

"(The market) is paring back those expectations of a depo rate cut," said Benjamin Schroeder, strategist at Commerzbank."Maybe they have put too much hope in such discussions and now they are seeing that the ECB itself is seeing little benefit in actually lowering the deposit facility rate," he said, adding the discussion was still open.

Key Euribor bank-to-bank lending rates rose after Praet's comments, with the three-month Euribor rate rising to 0.183 percent compared to 0.181 percent in the previous session. The equivalent Libor rate, set by a smaller panel of banks in London, was 0.12286 percent, up from 0.12071 percent on Monday.

Money markets still pricing in chance of ecb deposit rate cut


´╗┐Nov 27 Money markets are still pricing in some chance that the European Central Bank will cut deposit rates into negative territory, even though that possibility did not feature at its last rate-setting meeting. But ECB President Mario Draghi also said on Nov. 8 the euro zone economy shows little sign of recovering before the end of the year, leaving open the possibility of an interest rate cut in the months ahead. Excess liquidity in the financial system and the ECB's non-standard measures have made it hard to use money market instruments as a gauge of interest rate bets, analysts say. But the fact that overnight Eonia rates are currently at 7 basis points - offering a spread over the deposit rate at zero - and the fact that Eonia forwards suggest they could fall to around 3 basis points in March next year shows that possibility still exists, analysts say.

"There is some probability priced in the forward on the Eonia that the deposit facility could be cut. This explains why Eonia is seen below the current level," said Giuseppe Maraffino, a fixed-income strategist at Barclays. Key Euribor bank-to-bank lending rates steadied, finding a firmer floor as a year-long downtrend under the weight of excess liquidity in money markets fades.

Three-month Euribor rates, traditionally the main gauge of unsecured bank-to-bank lending, were unchanged at 0.189 percent. Barclays expects the three-month Euribor rate to stabilize around this level. But it says the risks are skewed to the downside, "as rising expectations of a possible drop of the deposit rate into negative territory should push EONIA rates down, thus creating room for a further decline in the Euribor."

Banks demand a bigger premium to lend to each other over three months than overnight to compensate for the greater risk attached to lending for a longer time. Benjamin Schroeder, a strategist at Commerzbank, says the bank does not see a deposit rate cut on the horizon but also would not bet against a further fall in the Eonia rates."We wouldn't now start engaging in receiver positions here - betting on higher Eonia rates in the near term," he said.