ECB set to hike rates by 75 bps on Thursday – Barclays

Analysts at Barclays now see the European Central Bank (ECB) raising rates by 75 bps on Thursday even though markets are not fully pricing an outsized increase s.o far

Key quotes

"The markets are pricing a 68bp hike at this week's meeting, 123bp by the October meeting and 174bp by year-end, cumulatively. We have also changed our ECB call and are now forecasting a 75bp hike at this week's meeting, followed by 50bp and 25bp hikes in October and December, respectively, bringing the depo rate to 150bp by year-end.”

We also expect that President Lagarde could indicate during the press conference that a discussion on the end of reinvesting proceeds of the APP portfolio could take place in coming meetings, signaling another hawkish normalisation step.”

"As the markets are not fully pricing 75bp at September's meeting, such hawkish results could push EUR higher in the short term, but the sanguine economic forecasts for the euro area and ongoing energy concerns should keep the EUR under pressure in the medium term. If the ECB underdelivers, for example if it hikes by 50bp, the implication for the EUR could be a lot different and EUR/USD could test the lows again.”