7 Mar 2016
ECB will announce a cut in the deposit rate - Rabobank
Jane Foley, Senior FX Strategist at Rabobank, thinks that it is now beyond any reasonable doubt that the ECB will announce a cut in the deposit rate at the March 10 policy meeting.
Key Quotes
“Our forecast is for a 10bp cut to -40bp (to be followed by another 10bp cut in the June meeting). Although we do believe that a larger cut is possible – also taking into account the already elevated expectations in the market on this front – we do see a risk of Mr. Draghi receiving the same treatment as BoJ Governor Kuroda when he announced a cut into negative territory.
This has everything to do with market dynamics. If the ECB opts for a bigger deposit rate cut, the market would take this as a sign that the next could be of a similar size (we assume that the ECB does not want to say that it is the ‘last cut’ – as this is hardly credible bearing in mind what happened last year). We could then see a domino-effect in global rates, as the currency war steps up a pace.”
Key Quotes
“Our forecast is for a 10bp cut to -40bp (to be followed by another 10bp cut in the June meeting). Although we do believe that a larger cut is possible – also taking into account the already elevated expectations in the market on this front – we do see a risk of Mr. Draghi receiving the same treatment as BoJ Governor Kuroda when he announced a cut into negative territory.
This has everything to do with market dynamics. If the ECB opts for a bigger deposit rate cut, the market would take this as a sign that the next could be of a similar size (we assume that the ECB does not want to say that it is the ‘last cut’ – as this is hardly credible bearing in mind what happened last year). We could then see a domino-effect in global rates, as the currency war steps up a pace.”