BANGALORE (Reuters) - If the European Central Bank lives up to expectations for interest rate cuts and a liquidity operation on Thursday, such moves would only lower near-term money market rates slightly, a Reuters poll found on Monday.
The ECB is widely expected this week trim to what little it has left of its refinancing rate, send its deposit rate into negative territory and launch a long-term refinancing operation (LTRO) targeted at businesses.
Another cut to the ECB’s deposit rate, currently at zero, would effectively charge banks to park cash with it overnight but a slim majority of euro money market traders - 13 of 23 - said the package would only lower near-term money market rates slightly.
“If the whole package comes in, that would lower the rates,” said a trader at a large bank.
“Any effect from what the ECB does at the meeting will last only for a week or two and it will go into the short-term rate only, not so much into the medium- and long-term money market rates.”
The other 10 traders said further policy easing by the ECB on Thursday would not do anything to money market rates even in the near term. None of them expected rates to rise.
“It (ECB easing) would do nothing. The ECB has got nothing other than talk. There is absolutely no point if it cuts its rates, it make no difference,” said a trader at a large dealer.
Indeed, with the deposit rate already at zero and the refinancing rate at 0.25 percent, any further rate cuts are expected to be small - just 10-15 basis points.
Monday’s poll showed banks will repay 2 billion euros ($2.7 billion) in total next week of the two long-term crisis loans they took from the ECB, a tad higher than the 1.790 billion euros they will return this week.
Banks in the euro area will borrow 145 billion euros at the European Central Bank’s regular weekly refinancing tender, lower than the 174 billion euros last week.
Reporting by Deepti Govind and Rahul Karunakar; Polling by Rahul Karunakar