FxWirePro: Euro implied rates in swaps signal ECB monetary policy's dovish hopes

The main focus of this week is the ECB's monetary policy meeting that is scheduled on Thursday for  the rate decision.

The ECB has signalled a dovish tone in its policy minutes, so additional loosening of monetary policy at its upcoming meeting on 10th March is expected.

While December's under-deliverance highlights the risk of disappointment, the deteriorating economic outlook should persuade the Governing Council to be quite more dovish this time.

A 20 bps cut in its deposit rate and a €20bn expansion of its monthly asset purchases are expected from this policy.

Accordingly, the interest rate swap markets appear to be anticipating a fall in overnight interest rates - and, hence, the ECB's deposit rate (see implied rates) - of a bit more than 10 bps at this meeting, with another cut in later months.

But a Reuters poll of economists also revealed a strong expectation of a rise in the ECB's asset purchases from the current rate of €60bn per month.

The median forecast was a rise to €70bn but the range was from €70bn to €90bn - i.e. all 66 respondents predicted a faster pace of asset purchases.