Money markets short term rates rise after ecb praets comments

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LONDON Dec 12 Short-term money market rates rose on Wednesday as traders lowered expectations of further monetary easing by the European Central Bank after its chief economist said there was limited room for further cuts. Eonia forward contracts, used to speculate on where overnight lending rates will be at specific point in the future, broadly reversed the fall into negative territory seen after last week's ECB meeting. The rate on contracts dated from March next year through to July rose fractionally back above zero as traders reacted to comments from the ECB's Peter Praet. August contracts remained in negative territory. Praet said there was little room to cut the main lending rate below the current record low of 0.75 percent and cautioned over the effects of a cut below zero on the rate the central bank currently pays on deposits.

Those comments dashed expectations of a negative deposit rate which had built up after ECB President Mario Draghi said a depo rate cut had been discussed by the governing council and the bank was operationally ready for such a move.

"(The market) is paring back those expectations of a depo rate cut," said Benjamin Schroeder, strategist at Commerzbank."Maybe they have put too much hope in such discussions and now they are seeing that the ECB itself is seeing little benefit in actually lowering the deposit facility rate," he said, adding the discussion was still open.

Key Euribor bank-to-bank lending rates rose after Praet's comments, with the three-month Euribor rate rising to 0.183 percent compared to 0.181 percent in the previous session. The equivalent Libor rate, set by a smaller panel of banks in London, was 0.12286 percent, up from 0.12071 percent on Monday.