(Bloomberg) — Traders rejected their bets on the European Central Bank’s first rate hike until 2023, a sign that they are heeding a message of policy makers’ patience.
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Money markets now expect the central bank to raise the deposit rate by just 10 basis points in February 2023, compared to bets in December 2022 on Wednesday. After that, it could take five years for the policy rate to rise to 0%, swap contracts suggest.
“It looks like a rate hike in 2022 is exaggerated,” said Jens Peter Sorensen, senior analyst at Danske Bank A/S, who sees the current wave of inflation transient and expects the ECB to tighten borrowing costs after 2023. Europe’s fragile economic recovery and rising COVID cases as factors underscores patience.
Traders pared their bets after European Central Bank President Christine Lagarde and Executive Board member Isabel Schnabel questioned the tightening outlook next year. The European Central Bank’s Lagarde said on Monday that the terms of an interest rate hike next year were unlikely to be met, a comment echoed by Schnabel and Luis de Guindos on Wednesday.
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It’s a sharp turn for traders who priced as much as 20 basis points of tightening in 2022 last week, amid global inflationary fears after US prices rose in October at the fastest pace in three decades.
However, prices rose 4.1% in October, the fastest pace in 13 years and more than double the European Central Bank’s target.
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