For now, the ECB is determined to stay on course. Uncertainty lies beyond February meeting
It is widely expected that the European Central Bank (ECB) will raise its interest rates by 50 basis points (bps) at the February meeting.
Please find below what we expect:
- We expect the ECB to increase its interest rates by 50 bps, bringing the deposit rate to 2.5% and the Refi rate to 3.0%.
- We expect the Governing Council (GC) to reaffirm that interest rates still need to reach a sufficiently restrictive level and remain elevated long enough to bring down inflation to its 2% target in a timely manner.
- We expect ECB President Christine Lagarde to reiterate the meeting-by-meeting approach to calibrate monetary policy. We believe she will indicate that the pace of policy tightening will be reassessed at the March meeting as economic projections will be updated.
- We do not expect Christine Lagarde to reaffirm that “based on the information that we have available today, that predicates another 50-basis-point rate hike at our next meeting.”
- We expect the ECB to announce the details of Quantitative Tightening (QT).
In summary, the Governing Council will most likely try to maintain strong communication in order to avoid inflation expectations becoming de-anchored. However, with energy prices falling, the rising Euro and a worrying Bank Lending Survey, it is going to be difficult to keep this same message at the following meeting in March. We expect interest rates to decrease after this week’s meeting.
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