June 29, 2017 / 8:06 AM / 6 months ago

Money markets price in 90 percent chance of ECB rate hike by July 2018

LONDON (Reuters) - Money markets are pricing in a roughly 90 percent chance the ECB will lift interest rates by July 2018, reflecting a rise in investors’ rate-hike expectations after comments from the ECB earlier this week were seen opening the door to policy tweaks.

Forward Eonia bank-to-bank rates dated for the ECB meeting in July 2018 stood on Thursday at around minus 0.2713 percent, about 9 basis points above the Eonia spot rate of minus 0.3620 percent. ECBWATCH

This gap suggests markets are pricing in a roughly 90 percent chance of a rate hike by the end of July 2018.

Market expectations for a tightening in monetary policy have shot up this week after comments from European Central Bank chief Mario Draghi, remaining elevated even after the ECB tried to soothe the market reaction on Wednesday.

“I think markets are getting ahead of themselves again on ECB rate normalisation hopes,” said Martin van Vliet, senior rates strategist at ING.

Reporting by Dhara Ranasinghe, editing by Nigel Stephenson

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