Economist at UOB Group Lee Sue Ann reviews the latest ECB interest rate decision (October 27).
“The European Central Bank (ECB) decided to raise its three key interest rates by 75bps, and ECB President Christine Lagarde stated that ‘with this third major policy rate increase in a row, the Governing Council has made substantial progress in withdrawing monetary policy accommodation’, adding that it ‘expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target’ but ‘will base the future policy rate path on the evolving outlook for inflation and the economy, following its meeting-by-meeting approach’.”
“Meanwhile, inflation in the Eurozone jumped to an all-time high, while the economy weakened. According to preliminary estimates, GDP rose 0.2% q/q, weaker than a reading of 0.8% q/q in 2Q22. From a year ago, GDP increased by 2.1% y/y in 3Q22, compared to a reading of 4.1% y/y in 2Q22. Meanwhile, CPI came in higher than expected at 10.7% y/y in Oct, extending its climb from 10.0% y/y in Sep. Core CPI came in at 5.0% y/y, also higher from the prior month’s reading of 4.8% y/y.”
“We now see the ECB hiking by a cumulative 75bps (50bps at its next and final meeting for this year on 15 Dec, followed by 25bps at its 2 Feb meeting) before pausing. This will bring the refinancing rate to 2.50% and the deposit rate to 2.00% by year-end; and to 2.75% and 2.25%, respectively, by end-1Q23.”
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