March 17, 2017 / 7:52 AM / 4 months ago

Investors ratchet up expectations for ECB rate rise in December

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FILE PHOTO: European Central Bank (ECB) headquarters in Frankfurt, Germany, July 29, 2016.Ralph Orlowski/File Photo

LONDON (Reuters) - Euro zone money markets on Friday showed around an 80 percent chance that the European Central Bank could lift its deposit rate at its December meeting, up from 60 percent a week ago.

Rising expectations of a rate hike at the end of this year followed comments from ECB policymaker Ewald Nowotny, who said the central bank will decide at a later time whether to raise interest rates before or after ending its bond purchase program.

Forward Eonia bank-to-bank rates dated for the ECB meeting on December 14 stood at around minus 0.27 percent, some 8 basis points above the Eonia spot rate of minus 0.35 percent.

This gap suggests markets are pricing in about an 80 percent chance of a 10 basis point hike in the ECB's deposit rate by December, just as the central bank's current bond-buying scheme is scheduled to draw to an end. The ECB's deposit rate is currently minus 0.40 percent.

Money market rates show a 90 percent chance of a hike in January, and are fully priced for a rise in March.

Reporting by Dhara Ranasinghe; Editing by John Geddie

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