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ECB: Watch out Draghi for additional stimulus and deposit rate cut – Rabobank

FXStreet (Delhi) – Elwin de Groot, Senior Eurozone Strategist at Rabobank, suggests that in today’s ECB meet, markets will be looking to see if we get any further hints from Mr. Draghi of more ECB QE to come or else a surprise cut in deposit rates. (Talk about history repeating: it feels just like October 2014 in this regard.)

Key Quotes

“In a nutshell, the key message of the Governing Council's stance is that whilst weakness in demand in emerging markets is not something that is about to go away anytime soon and that downside risks to the economy have increased, it is too early to draw a firm conclusion with regard to the need for fresh policy measures.”

“Altogether we believe that the ECB will largely repeat that message in this week's press conference, which will be held in Malta. With market participants increasingly speculating about additional policy measures, there is some risk that the market could be disappointed. However, the tone of this week's message is likely to remain dovish in any case.”

“Indeed, we believe the ECB is merely buying time to get a better grip on underlying developments. We stick to our view that an expansion/extension of the asset purchase program is the most likely next step by the ECB, but we believe this will take place in December at the earliest.”

“In recent weeks we have witnessed increasing speculation in the market that the ECB may also cut its deposit rate again. From 6 months out, the Eonia forwards are now trading below the -20bps deposit rate threshold, suggesting that the market sees the probability of a deposit rate cut as 'material' (but still clearly below 50%).”

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