M&G: ECB threatens to undercut own work

M&G: ECB threatens to undercut own work

October 28, 2022

Fixed Income Central bank ECB
Rente (04) inflatie

Despite of yesterday rate hike, there is a danger that the ECB has become too cautious which will prolong the cycle of rate hikes, says Gareth Jandrell, Bond Specialist at UK asset manager M&G.

'Despite another 75bp hike, the ECB meeting of Thursday felt decidedly more cautious than the previous two meetings in July and September where there was a real sense of urgency. President Lagarde stressed the point that they have made “substantial progress” with rate hikes and the statement removed the passage 'over the next several meetings', which was central bank speak for 'the hiking pace is going to slow'. There was also a clear acknowledgment of the growth outlook deteriorating which seemed to overshadow the broadening inflation pressures.'

Jandrell continues: 'Unsurprisingly, markets have read the meeting as a dovish pivot and government bond yields have fallen in response. I think there is a real danger the ECB is going too dovish, too soon, undoing the work the ECB has done this far to tighten financial conditions. In turn this could mean having to hike for longer, potentially going higher and prolonging the interest rate cycle.'

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