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ECB tipped to keep rates on hold

Thursday, January 30 15:50:16

Rising money market rates and a stronger euro would push the European Central Bank into easing monetary policy further, according to a slim majority of analysts polled by Reuters, but that won't happen any time soon.

Median forecasts from the poll of 76 economists, taken this week, do not suggest the ECB will cut either the refinancing or deposit rates from current record lows through to June 2015 - the end of the forecast horizon.

"Rising money market rates would be a cause for concern for the ECB. It would have to react, probably by narrowing the interest rate corridor further," said Kristian Toedtmann at DekaBank. "But we do not foresee such a development."

Short-term rates have recently risen above the ECB's 0.25 percent refinancing rate after trading close to the deposit rate of zero. The euro has risen over 2 percent on the dollar since early November but has dipped a bit in recent weeks.

Late last week EONIA - Europe's interbank overnight rate - fell back below the ECB's main refinancing rate of 0.25 percent that banks pay when they borrow at the central bank's still-unrestricted lending operations.

It stood at 0.157 percent on Wednesday after having fixed above the main refinancing rate for four sessions last week, the first time since 2011 that has happened.

If the trend appears to be taking root, the vast majority of economists who said the ECB would act expect it to do so by cutting the refinancing rate. Only one said it would cut the deposit rate while around a third said it would cut both.

Meanwhile the euro zone economy is still growing, but not as vigourously as Britain's or the United States'. Most data are showing huge gaps between Germany, which is powering ahead, and near stagnation in France and Italy.

Unemployment in the euro zone as a whole remains high, and staggeringly so in countries like Greece and Spain, where well over one in four of the potential workforce have no jobs. (Reuters)