At today’s ECB meeting today, the ECB decided to end the net purchases under the APP programme on 1 July and announce that they ‘intend’ to hike policy rates by 25bp in July. For September they remain data dependent, but they essentially communicated that they will have to see an improvement of the inflation dynamics in order not to hike 50bp rate hike. Beyond that a sequence of gradual hikes will follow.
As a result of ECB’s guidance, we change our expectation for the size of the September rate hike to 50bp, but otherwise our call remains unchanged of 25bp in the other meetings between July this year and March 2023.
Risks are still skewed for more than one 50bp rate hikes, but with the current very uncertain outlook we expect the economic outlook will dampen the medium inflation pressure, paving the way for ‘only’ 25bp hike.
