ECB Preview: Another hike next week, likely 50 bps – Danske
27.04.2023, 15:55

ECB Preview: Another hike next week, likely 50 bps – Danske

The European Central Bank (ECB) will have its monetary policy meeting next week. Another rate hike is widely expected. Analysts at Danske Bank point out that the question is whether it will slow the hiking pace to 25 basis points or continue to hike once more by 50bp. They see a 50bp more likely, with no specific forward guidance but repeating a data-dependent approach to future policy decisions.

Key quotes:

“This time, the question is whether it will slow the hiking pace to 25bp or continue to hike once more by 50bp. We believe it will be a 50bp compromise deal with no specific forward guidance (nor guidance on balance sheet normalisation in H2 yet), but repeating a data-dependent approach to future policy decisions.”

“Economic developments since the ECB meeting, coinciding with the banking turmoil, have shown resilient economic activity and another record-high core inflation print. Headline inflation has declined on the back of base effects, but the stickiness of core inflation and wages should pave the way for another 50bp rate hike, in our view.”

“A 50bp rate hike would implicitly also be a signal for a July hike in our reading. Hence, the risk for lower medium-to long-term rates, irrespective of the hiking, is prominent, in a bearish flattening move of the curves.”

“With a 25bp rate hike, we find it difficult for Lagarde to communicate a rate hike beyond June, which could take around 15bp out of the peak policy rate pricing, and in this case we see further lowering on the real rates and as such easing of the monetary policy stance.”
 

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