Fresh fears of another rate cut from ECB

Note: This section contains information in English only.
Source: Dukascopy Bank SA
"Having talked the talk, we believe the ECB will soon need to walk the walk. Draghi made clear that the Governing Council stands ready to act not only in the face of a weaker economic outlook, but also in direct response to any ‘unwarranted' moves in money markets." 
- Peter Schaffrik and James Ashley, RBC analysts

Earlier this year analysts claimed that the European Central Bank will keep interest rates at current level of 0.25% until 2015; however, they have not excluded other measures, like the introduction of the U.S.-style bond-buying programme. Nevertheless, on Friday the Royal Bank of Canada pointed out that European policymakers will make another adjustment to its key refinancing rate, cutting it to a record of 0.1% in March in order to curb a rise in the Euro area's money-market rates. 

The Euribor rate, at which European banks are lending each other funds for three months, soared to the highest level since August 2012 on Friday, hitting 0.302%, as central bank's liquidity declined. Central bank's excess liquidity stood at 131.2 billion euros– the lowest level since December 2011. At the same time, a measure of the cost of overnight unsecured lending in the European interbank market advanced above the ECB's rate of 0.25%. According to RBC economists, March meeting will be the most appropriate time to cut rates further. 

Amid heating debates the ECB will pull the trigger soon, Mario Draghi tried to calm down markets by saying there is no need to cut the main interest rate, and there is no risk of deflation. Meanwhile, he added there are many encouraging signs, as recovery is broadening, easing trade imbalances as well as rising deficits.  

© Dukascopy Bank SA
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