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