May 29, 2018 / 8:19 AM / a month ago

Euro zone money markets slash 2019 ECB rate-hike bets

LONDON, May 29 (Reuters) - Euro zone money markets now price just a 30 percent chance of a 10 basis point rate rise from the European Central Bank in June 2019, reflecting a sharp scaling back of rate hike bets as economic growth slows and worries about Italy mount.

The difference between the overnight bank-to-bank interest rate for the euro zone (Eonia) and forward Eonia rates dated for the ECB’s June 2019 meeting was 3 basis points on Tuesday, down from around 6 bps last week and 9 bps earlier this month. .

That indicates investors are pricing in roughly a 30 percent chance of a 10 basis point increase in the ECB’s deposit rate — the minimum it is likely to increase — from minus 0.4 percent currently.

Further signs that the euro zone economy has lost momentum together with political uncertainty in Italy and Spain have prompted markets to reassess the outlook for the timing of the ECB’s first rate hike in this economic cycle.

Markets fully price one 10 bps rate hike by end-2019. Earlier this month, the market priced almost three, 10 bps rate rises, for 2019. (Reporting by Dhara Ranasinghe; editing by Sujata Rao)

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