* ECB give no fresh clues on monetary easing prospects
* Grim data means trader refuse to rule out rate cut
* Lack of Spanish bailout may make December cut less likely
By William James
LONDON, Nov 8 The European Central Bank gave
money markets no fresh signals that it was ready to lower
interest rates in the near future at Thursday's news conference,
but traders said prospects for a cut were still alive.
The central bank left rates on hold at 0.75 percent,
deferring any change in borrowing costs while it waits for a cue
to use its new bond-purchase programme, and stating that
inflation is expected to remain above 2 percent throughout 2012.
The lack of a strong reaction in financial markets showed
the decision broadly confirmed the expectations of traders who
borrow and lend money on a short term basis and are heavily
influenced by ECB policy.
That said, recent grim assessments of the euro zone economy
by the European Commission and the admission by ECB President
Mario Draghi that unemployment was 'deplorably high' had raised
some speculation of a shift in rhetoric towards more cuts.
"Those who were anticipating a change in Draghi's stance at
this meeting in the wake of his dovish words, will have been
modestly disappointed," said Rabobank strategist Richard
McGuire. "Implicitly the door is open but we've got no explicit
indication they are set to walk through it."
Euribor futures , a measure of interest rate
expectations, had rallied by around 4 ticks in the previous
session. They only gave up one tick of those gains during the
course of the meeting, indicating some disappointment but that
heightened expectations of a cut persist.
"The market had showed mounting expectation of further
easing from the ECB. Next month will be important for driving
the money market. The rally (in expectations) has been quite
substantial so there is limited scope for a further rally now,"
said ING strategist Alessandro Giansanti in Amsterdam.
December's meeting will bring an update to its staff
forecasts on inflation and growth which could, if they paint an
increasingly poor picture of the euro zone, support the argument
for more rate cuts.
Opposing that view is the ECB's acknowledgement that the
'monetary transmission mechanism', through which lower rates
lead to cheaper borrowing throughout the euro zone, is still not
The bank's main tool targeted at improving this mechanism is
a bond buying programme aimed at distressed countries like
Spain, but this will not come into effect until they ask for and
receive a euro zone bailout package -- a prospect that looks
unlikely in the near term.