Markets expect ECB to cut interest rate within months

Money markets are signaling the European Central Bank will cut borrowing costs within the next three months even as the main rate was left unchanged yesterday.

The rate that banks say they charge each other for three-month loans has fallen below the ECB’s benchmark by the most since 2001, pointing to lower borrowing costs, according to analysts including Alessandro Giansanti at ING Bank in Amsterdam. The central bank last cut its main rate on Jul 5 to a record low 0.75%.

“There is high expectation in the market for the refinancing rate to be lowered in the next three months,” said Giansanti, who forecasts the rate may be cut to as low as 0.25% by Oct.