Money Markets Say a BOE Cut Is Nailed on, Less so for the ECB

(Bloomberg) --

Money markets traders say the Bank of England will cut rates this month and it’s just a question of how much and when, while the decision faced by the European Central Bank is much less certain.

Investors reduced the odds for a half-point BOE rate cut after incoming Governor Andrew Bailey said more evidence was needed to decide the next move. Nonetheless, a 25 basis-point decrease is baked in and if Chancellor Rishi Sunak’s budget falls short on fiscal largess, odds for a larger move may increase.

The BOE is seen as having more room to cut as unlike the ECB its bank rate remains in positive territory.

The chances that the ECB will ease on Thursday are running at around 85% for a 10 basis-point rate cut with long-term loans said to be under consideration as an alternative monetary easing measure, putting in doubt the Governing Council’s desire to cut rates further below zero.

Moreover, recent comments from President Christine Lagarde and policy maker Francois Villeroy De Galhau have been mixed. While the former pledged to stand ready to take appropriate and targeted measures, the latter adopted a wait-and-see approach, saying that monetary policy was already very expansive. The market may thus be setting itself up for a disappointment from the ECB.

To contact the reporters on this story: James Hirai in London at jhirai3@bloomberg.net;Richard Jones in Berlin at rjones207@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, William Shaw

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