ECB's guidance will help stop market rates rising: traders

BANGALORE (Reuters) - The introduction of forward policy guidance at the European Central Bank will help prevent euro money market interest rates from rising, according to a firm majority of traders polled by Reuters on Monday.

ECB President Mario Draghi said on Thursday his Governing Council expects its key interest rates to stay at their present record low, or lower, for an extended period of time - departing from its long-held stance of never pre-committing on policy.

Fifteen of 20 euro money market traders said that change would likely prevent inter-bank lending rates in the currency bloc from rising. While the remaining five said it will not.

Euro zone money market rates have already risen over the last month since the U.S. Federal Reserve laid out a plan to ease the pace of its stimulus bond purchases this year.

"After the Fed tapering talks, euro zone money market rates were on the rise. However, ECB's forward guidance last week has calmed markets somewhat," said a trader.

The three-month Euribor rate, traditionally the main gauge of unsecured bank-to-bank lending, fell to 0.217 percent after the ECB meeting from 0.222 percent - still above the 0.198 percent prior to Bernanke's May testimony.

Not all traders were convinced that the ECB's forward guidance was enough to prevent the inter-bank lending rates from rising.

"The ECB's forward guidance is not specific and as such they may need to intervene verbally again if those rates start to move higher," said another trader.

The wider survey showed the ECB is expected to allot 4 billion euros ($5.13 billion) at its one-month tender this week and 107 billion euros at its weekly refinancing operation.

Last month, the central bank allotted 3.6 billion euros at its one-month tender, which is maturing this week. Banks took 107.7 billion euros at the seven-day tender last week.

The survey also showed banks will return 2 billion euros of the three-year crisis loans to the ECB next week, similar to the 2.095 billion euros they will repay this week.

($1 = 0.7792 euros)

(Reporting by Rahul Karunakar; Polling by Ashrith Doddi and Snehasish Das; Editing by Toby Chopra)