The European Central Bank probably will not cut the deposit rate at its June meeting, despite signals from several ECB policymakers that reducing the rate was their preferred measure to tackle a strong euro, a Reuters poll found on Monday.
ECB President Mario Draghi said at a press conference after last Thursday's policy meeting the bank was 'comfortable' with taking action in June. But he stopped short of just what action it would take.
Only eight of 23 money market traders in Monday's poll expect the ECB to cut the deposit rate from its current zero percent next month - a move that would effectively charge banks for parking their money with the ECB.
Even if the bank were to cut the deposit rate from zero, it would most likely only cut by 10 to 15 basis points, the poll showed.
That is similar to the findings of a Reuters poll conducted before the ECB meeting last week. Only 6 of 58 economists had penciled in a deposit rate cut in the second quarter of 2014.
"I think this (the next ECB meeting) will once again be a matter of talking and trying to keep expectations alive without any reaction because ... negative rates are still unlikely," said one money market trader.
Monday's survey of 22 money market traders also found banks will return 3.5 billion euros ($4.8 billion) of the two long-term loans they took from the ECB next week, a tad more than the 3.365 billion they will repay on Wednesday.
With their balance sheets set to be put under the microscope in the upcoming Europe-wide bank stress tests, banks in the region are voluntarily offloading the two crisis loans.
But with excess liquidity below the 100 billion-euro mark, banks could borrow much more at the ECB's weekly refinancing operation than the mean average over the past two months of 113.2 billion euros per week.
Indeed, medians in the poll showed banks were likely to borrow 135.0 billion euros at the ECB's seven-day tender, more than the 129.1 billion euros maturing this week.
They will also bid for 28 billion euros at the central bank's one-month operation, roughly the same as the amount they took in April.
Source: Reuters
