ECB: 50bp hike next week has been well-communicated, focus will be on the path thereafter – Rabobank
27.01.2023, 16:17

ECB: 50bp hike next week has been well-communicated, focus will be on the path thereafter – Rabobank

The Federal Reserve, the Bank of England and the European Central Bank (ECB) will have their policy meetings next week. Market participants expect a 50 basis points rate hikes and to signal it will continue raising rates. Analysts at Rabobank, point out that a 50bp rate hike is all but a given for next week. They still expect the ECB can scale back to 25bp hikes from March, but the stronger outlook and wage pressures could delay this and pose upside risks.

Hawks still have an upper hand, but are no longer getting carte blanche

“The ECB’s hawks are still in a strong position, but they no longer have carte blanche with initial signs of easing inflation. The 50bp hike at next week’s meeting has been well-communicated, so focus will be on the path thereafter. This message will be more difficult, with Lagarde’s latest verbal intervention at odds with the ECB’s discontinuation of forward guidance, in favour of a meeting-by-meeting approach. Finally, we don’t expect the parameters of quantitative tightening to be very brow-raising, but supranational debt could get a favourable treatment.”

“The ECB has already announced that quantitative tightening will start at a pace of €15 billion per month, and that this will not involve active sales. We don’t expect the ECB to favour any of the APP programmes or any of the sovereign issuers when it comes to redemptions.”

 

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