Investors say ECB to lower rates sooner

LONDON- Investors are pricing in an increased chance the European Central Bank will cut interest rates sooner rather than later, reflecting heightened fears that coronavirus will spread and hit the euro zone economy hard.

A fourth person infected with the coronavirus has died in Italy, officials said on Monday, as the government struggled to contain an outbreak of the illness.

As new cases rose in South Korea, Iran and Italy, fuelling concern that the coronavirus outbreak in China will grow into a pandemic, investors started to price in greater chances of a near-term rate cut by the ECB.

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Eonia money market futures dated to the ECB’s July 2020 meeting show about 5 basis points of rate cuts are now priced in, up from 3.5 bps a week ago. That equates to roughly a 50 percent chance of a 10-bps cut versus 35 percent last week.

It marks a turnaround from the start of 2020, when a stabilization in data had led to a view that the ECB might be encouraged to start raising rates from next year.

US fed fund futures signaled more rate cuts later this year and a near 20 percent chance of a cut next month.

With Italy, the euro zone’s third-biggest economy, shutting schools, universities, museums and cinemas in its worst-hit areas, analysts said a rate cut may do little to shore up economic growth.

But they added that because the ECB was running out of ammunition, a rate cut remained one of the best options available. — Reuters

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