###POV: ARE MARKETS PRICING TOO MUCH OR TOO...>

EONIA: ###POV: ARE MARKETS PRICING TOO MUCH OR TOO LITTLE RISE IN ECB RATES?

- MNI PINCH calculate markets pricing a ECB deposit rate increase of 5bps by

Jan-2019 ECB meeting, however this increases to 12bp by the time of the Mar-2019

meeting and around 19.5bps for Jun-2019 meeting.

- There can be two views on the Mar-2019 meeting, either the markets are pricing

too much for a 10bp rise in the deposit rate or not enough for a 15bp hike. Or

if you have similar thoughts to Barclays and think the first rate hike will be

20bps then it is pretty much priced in by the markets for the Jun-2019 meeting. 

- The other thing to consider is what will the ECB do with the Main Refinancing

rate at 0.00% and the Marginal Lending Rate at 0.25%. Will these also be raised

at the same time and by the same amount when the deposit rate is raised?

- The depo/refi rate spread currently at 40bps was as narrow as 25bp between Nov

2013 and Dec 2015 while the ref/marginal rate spread has been at 25bp since Jun

2014. With the ECB likely to want a very gradually removal of monetary policy

stimulus there is a reasonable chance there could be a 15bp rise in the depo

rate only as the ECB's first mini-step into policy normalisation.