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ECB rate hike bets pushed back to late-2020, money markets show

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ECB rate hike bets pushed back to late-2020, money markets show
FILE PHOTO: The headquarters of the European Central Bank (ECB) are illuminated with a giant euro sign at the start of the "Luminale, light and building" event in Frankfurt, Germany, March 12, 2016. EUTERS/Kai Pfaffenbach/File Photo   -   Copyright  Kai Pfaffenbach(Reuters)
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LONDON (Reuters) – Investors have pushed back expectations for a rise in euro zone interest rates to late-2020 from mid-2020 following the European Central Bank’s decision to delay the timing of its first post-crisis rate hike.

The ECB said on Thursday rates were unlikely to rise until 2020 at the earliest. It also cut its growth and inflation forecasts while offering banks a new set of cheap loans to bolster economic growth.

The difference between the overnight and forward Eonia interest rates — bank-to-bank interest rates for the euro area that provide some indication of how investors view the ECB rate trajectory — imply a 10-basis-point rate hike is now only fully priced in for late-2020 compared with middle of 2020 previously.

In a further sign that the ECB’s new guidance had prompted investors to reassess the outlook for rates and inflation in the bloc, long-term inflation expectations also fell.

A key market gauge of euro zone inflation expectations, the five-year forward inflation swap, dropped to a nine-day low at 1.4618 percent. It had traded as high as 1.51 percent earlier this week.

(Reporting by Dhara Ranasinghe and Virginia Furness, Editing by Sujata Rao)

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