Eurozone money market rates rose on Thursday as the European Central Bank raised interest rates and cemented expectations for at least two more rate hikes by year-end as it seeks to cool rising price pressures. The ECB's widely expectedly quarter-point rate hike to 1.25 percent was its first such move since July 2008.
In contrast, the Bank of England left its key rate at 0.50 percent, as concerns over domestic growth trumped, for now, worries over an uncomfortably high 5 percent inflation rate, analysts said. Short-dated rates for June rose four basis points to 1.18 percent, implying a 60 percent probability of a rate hike compared with around 40 percent before the ECB comments.
Overnight index swaps still showed the market fully pricing in a total of three rate increases this year with an outside chance of a fourth. The ECB again signalled its intention to contain upside price pressures, as high oil and food prices forced up regional inflation in March at a rate of 2.6 percent, the highest since late 2008. The two-year rate on euro interest rate swaps, a barometer of private borrowing costs, touched 2.419 percent on Thursday, its highest since January 2009. Short-term European rates have been rising in recent weeks on growing expectations that the ECB will increase rates, with benchmark interbank rates hitting their highest in 21 months, this week. Three-month Euribor rose to 1.280 percent from 1.269 percent on Wednesday, the highest level since June 2009, with Barclays Capital strategists expecting it to rise to 2 percent by the end of the year.
Equivalent Libor rates fixed up at 1.22875 percent from 1.21938 percent. "The risk of a further rate hike has increased especially following recent dynamics of inflation and especially given Trichet has said inflation risks are on the upside," said Giuseppe Maraffino, a rate strategist at Barclays Capital. Euribor interest rate futures firmed slightly on the 2012 strip, but were little changed along the 2011 curve.
Comments
Comments are closed.