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Forex Flash: Majority of ECB Board favoured December rate cut – BBH

By FXstreet.com,  January 02, 2013, 11:11:00 AM EDT

FXstreet.com (Barcelona) - The analysts at Brown Brothers Harriman have picked up on some speculation that despite taking no action, the ECBboard favoured a rate cut in December and could adopt a negative deposit rate.

However, the team note that the spike up in German CPI, which based on the states report suggests that the national rate will come in back above 2% and may quell speculation ahead of next weeks ECB meeting. Additionally, they add that a negative deposit rate could perversely trigger a tightening of monetary conditions if the banks respond by repaying their long-term repo borrowings. The team add, "Some of the core banks are expected to do so in any event, but a negative deposit rate could spur a larger pay down, in addition to other disruptions in the money markets. On balance, we expect that the ECB will not cut the deposit rate, but allow the rate corridor to narrow."




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.


This article appears in: Investing, Forex and Currencies

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