The European Central Bank rate hike and Lagarde’s news conference summaries are here:
Via Deutsche Bank, their take on the day and outlook ahead:
In line with the consensus and our baseline expectation, the ECB downshifted the pace of hikes to 25bp. The ECB has now hiked the deposit facility rate by 375bp over the course of 9 months, a very rapid tightening.
We interpret the latest ECB decision as a ‘hawkish 25’.
- First, between the action to accelerate full exit from APP reinvestments and the non-action on TLTRO, the ECB’s decision had the maximum contractionary impact on its balance sheet.
- Second, the policy statement had several hawkish elements, including the description of inflation, the continuing above-target inflation forecast despite the tighter BLS, and the soft guidance to expect further hikes (plural).
We are holding our baseline view of a 3.75% terminal rate, with 25bp hikes in June and July.
- However, our earlier description of balanced risks around a 3.50-4.00% landing zone is no longer appropriate. It feels much less likely that the hiking cycle will end at 3.50% after one more hike in June. We now see upside risks to our 3.75% call again — a 4%+ terminal rate is possible. Given sticky underlying inflation and robust labour market dynamics, the data going forward need to confirm that transmission is strengthening if the ECB hiking cycle is to stop at 3.75%.