Underlying inflation pressures have yet to improve for the ECB to signal an end to its policy rate hikes. Since the February meeting, the economic outlook and labour market still show resilience, pushing the eventual end of ECB hiking further out.
Accordingly we adjust our expectations for the policy path from ECB and now expect a policy peak rate of 4% (deposit rate), with hikes of 50bp in March, 50bp in May, 25bp in June and 25bp in July. We naturally remain data dependent and may adjust the call at a later stage, but for now we see the risks around our baseline rate hike expectations as broadly balanced. Our revision comes on the back of more resilient economic activity and more ‘sticky’ underlying inflation developments.
We see the 50bp rate hike ECB intends to deliver at the March meeting as a ‘done deal’, but the key discussions at the meeting will be on the guidance for the May meeting on the back of the new staff projections.
