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Money markets euro markets stable with no sign of rate cut


* ECB keeps rates on hold, no discussion of easing* Analysts still expect one more cut* Markets not fully pricing low rates for a long timeBy Kirsten DonovanLONDON, Oct 4 Euro zone money markets were stable on Thursday after the European Central Bank kept interest rates on hold, giving no clue when, or if, it may ease them further, although many analysts still expect such a move. The ECB held its main refinancing rate at 0.75 percent and left the rate it pays banks to deposit cash over night - a key factor in calculating the rates at which cash is lent to the wider economy - at zero percent as expected. However, President Mario Draghi said rate cuts had not been discussed at all this month."It's looking less likely we'll get a cut next month," said Credit Agricole's global head of interest rate strategy David Keeble."We're not ruling out a cut, we expect it to come at some point, but they're dragging their feet."

The ECB can cut either the deposit rate or the refinancing rate or both. It has typically maintained a fixed corridor between the two rates but in order to continue this, any further refi rate cut would have to be accompanied by an unprecedented fall in the deposit rate to negative territory. Market pricing based on forward overnight swap rates and presuming a constant relationship between these and the deposit rate shows that the expectation of a cut in the deposit rate this year remains minimal."The deposit rate remains the underlying driver for short-term interest rates and the macro economic impact of changing the refi rate alone is not obvious," said RBS rate strategist Simon Peck. However, economists polled by Reuters last week expect the ECB to cut the refinancing rate to 0.5 percent in the fourth quarter of the year, then remain on hold through 2013.

"Looking at the global backdrop there still remains the justification at some point on the horizon for a rate cut," RBS' Peck said. "With the focus currently on the OMT programme this may turn into a story for early 2013," he added, referring to the ECB's Outright Monetary Transaction bond-buying programme. The Eonia overnight rate is currently at 8.5 basis points . It is seen at 7 basis points in December and only marginally lower through the first half of next year. If a deposit rate cut to minus 25 basis points were being priced in, forward Eonia would likely fall further. And without further changes to the ECB's remuneration system, having a negative deposit rate may not encourage banks to lend more: banks could continue to leave excess cash in their current accounts at the central bank - which pays no interest - rather than lend it to each other or the wider economy. An ECB survey released last week showed that conditions worsened in euro zone money markets in the second quarter of 2012 with liquidity and lending falling, while lending to the firms and households remains moribund .

LOWER FOR LONGER What markets may not be pricing in fully however, is for how long rates may stay at very low levels. Deutsche Bank notes that the front end of the euro yield curve is steeper than both its sterling and dollar counterparts, implying a "faster normalisation period". For example, Eurodollar futures show an implied rate at the end of 2014 around 20 basis points higher than currently, while the Euribor equivalent shows implied rates around 35 basis points higher. The bank recommends buying December 2014 Euribor contracts and selling equivalent maturity Eurodollar contracts to take advantage of any flattening in the Euribor curve as lower rates for longer are priced in. Similarly, RBS recommends betting that the one-year Eonia rate in one year's time will fall. That rate is currently at 18 basis points and the bank has a target of 8 basis points.

Rpt fitch affirms melsta regal finance at a+(lka); outlook stable


(Repeat for additional subscribers)May 21 (The following statement was released by the rating agency)Fitch Ratings has affirmed Melsta Regal Finance Ltd's (MRF) National Long-Term rating at 'A+(lka)'. The Outlook is Stable. KEY RATING DRIVERS MRF's rating reflects Fitch's expectation that support would be forthcoming from its ultimate parent, the Distilleries Company of Sri Lanka PLC (DIST; AAA(lka)/Stable). Fitch classifies MRF as being of limited importance to DIST, which results in a rating differential of four notches.

The agency's assessment is based on DIST's full effective ownership of MRF through its 100% stake in investment holding company Melstacorp Limited, which holds all non-beverage sector assets of the group. It addition, DIST has representation on MRF's board, and has demonstrated support in the form of regular equity infusions, a back-up credit line and the provision of letters of comfort for borrowings. The assessment however, also reflects MRF's still insignificant role in the group, the low level of operational integration, the absence of a common brand and relatively small contribution to group profit (0.6% in the nine months ending December 2013. Fitch is of the view that linkages between the entities could increase over the medium term as MRF, a licensed finance company, increases its scale through actively taking part in the financial sector consolidation. The authorities also require MRF to increase its capital base to LKR1.5bn by end-2017 (LKR1.1bn at end March 2014). In addition MRF is required to list by end-2014 with an expected public shareholding of around 20%. Fitch believes that DIST will continue to retain a majority stake.

MRF has expanded quickly since it started commercial operations in October 2012 as part of DIST group and Fitch expects that it will continue to growth rapidly. Short-term debt factoring and working capital finance remain MRF's core products, accounting for approximately 60% of advances in the financial year ending March 2014, with the remainder comprising mainly finance leases and hire purchase vehicle finance. DIST's ability to support MRF stems from its market leadership in the cash generative domestic alcoholic beverage sector, with profitability supported by relatively stable demand for spirits though economic cycles, and high entry barriers as a result of regulation.

RATING SENSITIVITIES MRF's rating may be downgraded if there is a change to DIST's ability or propensity to provide support. This may stem from a downgrade of DIST's National Long-Term rating, or weakening linkages between DIST and MRF. Fitch may consider narrowing the notching between the two entities should synergies, such as the provision of working capital products to DIST's suppliers and customers, materialise, thereby enhancing its role within the group. In addition, an increase in MRF's strategic importance through stronger linkages with the DIST group, higher profit contribution or common brand recognition could lead to an upgrade. var $relatedItems = $('lia "/article/riyad-bank-dividend-idUSD5N1E9002"Saudi\'s Riyad Bank recommends lower cash dividend for H2 2016/a/lilia "/article/idUSFWN1EU0AO"BRIEF-CME Group reached record average daily volume of 15.6 mln contracts in 2016/a/li'), $relatedItems = $relatedItems.slice(0,10), relatedBlockLimit = Number('6'), relatedItemsTotal = $relatedItems.length, $paragraphTags = $('#article-text p'), contentParagraphs = 0, minParagraphs = Number("8"); for (i=0; i $paragraphTags.length; i++) { if ($paragraphTags[i].innerText.trim().length 0) { contentParagraphs = contentParagraphs + 1; } } if (contentParagraphs minParagraphs) { setTimeout(function(){ if (relatedItemsTotal relatedBlockLimit) { $('.first-article-divide').append('div class="related-content group-one"h3 class="related-content-title"Also In Financials/h3ul/ul/div'); $('.second-article-divide').append($('.slider.slider-module')); $('.third-article-divide').append('div class="related-content group-two"h3 class="related-content-title"Also In Financials/h3ul/ul/div'); var median = (relatedItemsTotal / 2); var $relatedContentGroupOne = $('.related-content.group-one ul'); var $relatedContentGroupTwo = $('.related-content.group-two ul'); $.each($relatedItems, function(k,v) { if (k + 1 = median) { $relatedContentGroupOne.append($relatedItems[k]); } else { $relatedContentGroupTwo.append($relatedItems[k]); } }); } else { $('.third-article-divide').append($('div class="related-content group-one"h3 class="related-content-title"Also In Financials/h3ul/ul/div')); $('.related-content ul').append($relatedItems); } },500); } Next In Financials Dubai Islamic Bank requests proposals for dollar sukuk - sources DUBAI, Jan 4 Dubai Islamic Bank (DIB) has asked banks to submit proposals to arrange a potential U.S. dollar-denominated sukuk issue, sources familiar with the situation said on Wednesday. BRIEF-Colliers International UK acquires hospitality asset management firm * Colliers international uk acquires market leading hospitality asset management firm BRIEF-Dena bank to consider capital planning for FY 2016-17 * Says to consider capital planning for FY 2016-17 i.e. raising of capital through equities and/or bonds Source text: this site Further company coverage: MORE FROM REUTERS window._taboola = window._taboola || []; _taboola.push({ mode: 'organic-thumbnails-a', container: 'taboola-recirc', placement: 'Below Article Thumbnails - Organic', target_type: 'mix' }); Sponsored Content @media(max-this site) { #mod-bizdev-dianomi{ height: 320px; } } From Around the Web Promoted by Taboola window._taboola = window._taboola || []; _taboola.push( { mode: 'thumbnails-3X2', container: 'taboola-below-article-thumbnails', placement: 'Below Article Thumbnails', target_type: 'mix' } ); window._taboola = window._taboola || []; _taboola.push