ECB: Increase in interest rates to occur not before September 2019 - Rabobank

The ECB’s governing Council did not dare to make any significant changes to its previous policy in its last meet, potentially still fearing any negative market reaction that might have ensued, according to analysts at Rabobank.

Key Quotes

“The Governing Council’s decision was clearly on the more dovish side of the spectrum; not necessarily in terms of the actual size of purchases beyond 2017 but more so in terms of Mr. Draghi’s justification. Adding the ECB sources that suggested that the working hypothesis is currently a short taper following this extension, and seeing the ‘soft rates guidance’ that we infer from the fixed rate full allotment pledge, we have pushed back our call for the first interest rate hike.”

“This implies that we now foresee the first increase in interest rates to occur not before September 2019. The EUR money market seems to be of a similar view. The curve has flattened significantly after the ECB meeting, with 24m Eonia losing around 5bp over the past two weeks – equivalent to half a (10bp) rate hike! Markets are effectively pricing in a hike around June 2019.”