Franklin Templeton's Zahn sees no ECB rate rise until 2021

LONDON (Reuters) - The European Central Bank (ECB) won't make its first move on pushing up interest rates until 2021, David Zahn, head of European fixed income at Franklin Templeton Investment Management said on Tuesday, adding he had pushed back his forecast from the previous 2020.

He told Reuters he remained optimistic on the euro zone growth outlook because of domestic consumption but added:

"I don't see the ECB moving on interest rates until 2021, previously I thought they would hike in 2020."

While the ECB has been flagging a rate rise in the second half of 2019, money markets now price only a 40 percent probability of a 10 basis-point move by end-2019 following deteriorating economic data in recent months.

Zahn also said Brexit uncertainty had led him to change his position on British government bonds. The UK is set to leave the European Union on March 29, but there is little clarity on the manner or its exit or even whether it will actually do so.

"We moved to "Neutral" from an "Underweight" position on gilts in the fourth quarter, and it feels like most other managers are doing so," Zahn said.

He added he was neutral on sterling and believed that the currency is fundamentally undervalued.

(This story has been refiled to change day in first paragraph)

(Reporting by Virginia Furness and Dhara Ranasinghe; writing by Sujata Rao; editing by Karin Strohecker)

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