At today’s ECB meeting, the ECB delivered a 50bp rate hike in all three policy rates as widely anticipated, so now the ECB deposit rate is at 2%. The ECB also announced that the end to full APP reinvestments would start in March 2023, which was more specific than the presentation of key principles expected. The ECB guided that from March 2023 to June 2023, its securities holdings will decline by EUR15bn per month on average. The pace beyond that is still to be determined.
Lagarde highlighted the data dependent and meeting by meeting approach, but at the same time also gave a firm guidance that today’s 50bp rate hike will not be a single 50bp rate hike and that more will follow.
While we expected an open-ended wording of more rate hikes to come, we were surprised by the significant hawkish guidance Lagarde gave today. In our preview, we had already pointed to the risk to our forecast for longer/more than our baseline and as a result of today’s meeting we revise our ECB call and add another 50bp to the peak cycle rate to 3.25%, so our new call is for 50bp in February (unchanged), 50bp in March (+25bp) and 25bp in May (new). We remain open to further rate hikes in June next year.