ECB cuts the refi rate by 25 bp to 0.25%. (depo rate unchanged; marginal lending rate down 25bp).
The ECB decided to act early. Apparently they have been closer to acting in the past few months than we and most others had thought. It will be very interesting to see if the ECB has more to deliver when the press conference starts in half an hour. More liquidity or a strengthened forward guidance would add to the surprise.
As we pointed out, the ECB had different measures in their tool box. If the ECB doesn’t announce more at the press conference then more liquidity provisions (cutting reserve requirements or ending sterilisation of SMP holdings) look less likely in the very near term.
The ECB is there. It is ready to act. It will be ready to do more, if needed. We do not expect more at this point – inflation probably bottomed in October and the recovery seems slow but on track. We’ll see in half an hour if we need to revise that.
The EUR is weakening EUR rates are down all over the curve with e.g. EONIA 1y1y down about 10bps and the German Bund down about 5bps. The market was probably tilted towards a cut either in November or in December. The reaction would likely have been larger otherwise
Nordea