ECB to end negative rates in 2020

The European Central Bank will end its negative interest-rate policy in January 2020 and start paying for deposits eight months after that, according to a Bloomberg survey of economists.

Lift-off is predicted for September next year, and the deposit rate is seen climbing to 0.25 per cent, from minus 0.4 per cent currently, by the end of 2020. No change in monetary policy is predicted at the Governing Council’s meeting on Thursday.

Policymakers took a big step this month toward scaling back unprecedented stimulus, reducing monthly asset purchases to €15 billion (Dh63 billion). With the programme set to be capped at €2.6 trillion at year-end, interest rates have moved back to the spotlight.

While the ECB doesn’t plan to tighten borrowing costs until at least after next summer, some officials have publicly discussed strategies to communicate their intentions — not just with regard to the first rate step, but also the subsequent pace of increases.

“Until now, ECB’s forward guidance concentrates on the first rate hike’s timing,” said Kristian Toedtmann, an economist at Dekabank in Frankfurt. “But when summer 2019 comes closer, the ECB should also more actively steer market expectations about how fast policy rates will rise over the medium term” to avoid a “too-strong tightening of financial conditions.”

In forecasting the interest rate path, economists have to weigh a wide range of risks. Italy’s budget crisis has jumped to the top of concerns in the survey, as the nation’s bond yields surge.

ECB policymakers also highlighted rising protectionism, vulnerable emerging markets and financial volatility as key risks at their September meeting.