Rpt money markets watching for exit strategy comments at ecb meeting

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* Money market curve has steepened in March* Markets focus on exit strategy debate at the ECB meeting* Curve may flatten back Draghi avoids "exit" commentsBy Marius ZahariaLONDON, April 2 Last month's rise in long-term euro zone money market rates could unwind if the ECB does not take the debate about an eventual withdrawal of its emergency cash injections any further at its meeting on Wednesday. Several policymakers, led by the German Bundesbank chief Jens Weidmann, have said in recent weeks that the European Central Bank needs to prepare an exit strategy after pumping about 1 trillion euros of cheap funds into the financial system. In the context of upbeat macro-economic data out of the United States and receding expectations for more monetary easing in the world's largest economy, the comments have led to a steepening of the money market curve. But analysts say the move may have gone too far given the bloc's weaker economic outlook relative to the United States.

"Recent comments by some of the ECB members have brought the exit strategy on the table," Commerzbank rate strategist Benjamin Schroeder said."(But) I think the steepening move has already happened and I would expect some flattening out of the ECB meeting if there is no talk about the exit strategy."Euribor futures fell across the 2013 and 2014 strip last month, indicating expectations for higher interest rates. The 2012 contracts remained relatively stable reflecting no near-term expectations for a change in monetary policy.

The December 2013 Euribor had fallen by some 20 ticks to a 10-week low of 98.81 in the first two weeks of March, reflecting interest rates were expected to be 20 basis points higher at the end of next year than they were seen in February. The contract has since rebounded to trade at 98.99 on Monday as disappointing euro zone data such as the manufacturing PMI surveys have tamed the steepening pressure. Analysts say long-term money market rate expectations could fall back towards levels seen at the beginning of last month if President Mario Draghi keeps his neutral stance on the debate. He has so far avoided to commit to an exit strategy, saying only that the ECB will take immediate action if the inflation outlook worsened.

FALLING EURIBOR RATES ING's head of investment grade debt strategy Padhraic Garvey also did not expect Draghi to change his tone on Wednesday and said this would give more momentum to a fall in Euribor rates "across the curve."The benchmark three-month Euribor rate fixed at 0.771 percent from Friday's 0.777 percent, the lowest level since the late June 2010. Twelve-month rates dropped by a lower amount to 1.410 percent from 1.416 percent. Erste Bank fixed income analyst Mildred Hager expected the three-month Euribor rate to fall to 0.70 percent during this quarter and remain stable for the rest of her forecast horizon until March 2013. No change in the ECB's main refinancing rate was expected in the foreseeable future and no further liquidity injections were seen in the near term, Reuters polls showed, leaving any market reaction dependent on Draghi's post-meeting news conference. Erste's Hager expected the first hike in the ECB's benchmark interest rate at the end of the 2014 or the beginning of 2015."I don't think there's anything that can be contained in the ... (ECB) statement that could change that," Hager said. Overnight Eonia forward rates trade within a tiny 0.35-0.37 percent range on the 2012 strip, but gradually rise above 0.40 percent in 2013, when banks have the option to pay back some of the cheap ECB loans.