by This Thursday marks the ECB’s first meeting of the year, having ended 2022 overall with a total of 250 basis point hikes. At the last meeting in December, the ECB went ahead with a 50 basis point hike, after two consecutive 75 basis point hikes.
“An increase of 50 basis points is expected, according to the money market, and the ECB should also confirm an increase of another 50 basis points at the next meeting on March 16,” Paulo Rosa, senior economist at Banco Carregosa, said in a statement. in Luza.
Along the same lines, in statements to Lusa, Filipe Garcia, president of the IMF — Information for Financial Markets, believes that “the ECB should increase by 50 basis points [os juros]signaling that the job is not done and that, despite the positive signs in inflation developments, there are also positive signs in the economy, so monetary tightening should continue throughout the semester.”
Franck Dixmier, global director of bond investments at Allianz Global Investors (AllianzGI), who also expects a 50 basis point rise, in a “research” note expects “the ECB president to continue to stick to her hawkish message, while expectations of the rest of the investors regarding the terminal rate are very modest.”
For his part, Paulo Rosa notes that “the significant slowdown” in inflation in the eurozone in January, “may soften the ‘hawkish’ tone of Christine Lagarde (slightly reducing her current restrictive stance) and is expected, even in this first half, that the eurozone central bank’s terminal rate was reached, bringing some relief into the second half of the year.”
“Underlying inflation in the euro area fell 0.8% in the series to 5.5% year-on-year, confirming a significant improvement in inflationary fears, allowing the ECB to energetically ease its contractionary policy, slowing growth of its interest rates”, he justifies.
Goldman Sachs also points to a steady pace of 50 basis point hikes in a research note, but believes the terminal rate is “data dependent”.
Paulo Rosa also underlines that the ECB will start reducing the balance sheet next March and will amount to, on average, 15 billion euros per month until the end of the second quarter of 2023.
“The evolution of inflation and economic growth will determine the pace from that date. January’s slowdown in euro zone inflation is not enough to limit the current size of the balance sheet drawdown, but the threat of a possible recession as interest rates rise could make the ECB’s “quantitative tightening” contingent on the second half of the year “, he explains.
The interest rate applicable to the main refinancing operations and the interest rates applicable to the marginal financing facility and the deposit facility are currently at 2.50%, 2.75% and 2%.
