BlueBay: ECB is clearly out-hawking all other central banks

BlueBay: ECB is clearly out-hawking all other central banks

December 16, 2022

ECB
Geld euro ECB

Kaspar Hense, Portfolio Manager at BlueBay, comments on yesterday's ECB meeting:

'The ECB is clearly out-hawking all other central banks today by some margin and perhaps rightly so: a stronger EUR will improve current account dynamics by leading to lower oil and gas prices. Europe tends have longer overall mortgage maturities than the likes of Norway or the UK, which means less impact on discretionary incomes. We agree that growth is most likely stronger than the market was expecting but the ECB has been even more aggressive than we were expecting on its projections.

The sluggish growth expected next year means that we struggle to see core inflation rising that strongly in 2023, which filters into its 2024 headline inflation forecast of 3.4%.

With Mme Lagarde seemingly not about to change course, we expect another 50bps in February, followed by 50bps in March and 25bps in May. The ECB may then pause at 3.25%, which is higher than our previous expectations of a smaller hike in March and ending at 3%.

However, with the ECB outrunning markets, the yield curve should start to invert further from here and price in a deeper downturn with the risk that financial conditions become too tight in the coming year.'

 

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