Fidelity: ECB keeping all interest rate options open

Fidelity: ECB keeping all interest rate options open

June 16, 2023

ECB
ECB (07)

Anna Stupnytska, Chief Economist at Fidelity International, comments on yesterday's ECB's meeting.

'The ECB went ahead with another 25 basis point hike at its June meeting, which was well-telegraphed and widely expected. The statement repeated that underlying price pressures remain strong but also acknowledged “some signs of softening” in recent data. Staff projections for core inflation have been upgraded for 2023-2025 while growth projections have been downgraded slightly, stressing the sharper growth-inflation trade-off faced by the ECB in coming months as it gets closer to the end of the tightening cycle.

The main question going into this meeting was the ECB’s guidance on how much further they expect to raise rates from here. President Lagarde's message on the next step was clear - the ECB is expecting to continue hiking rates in July "barring a material change to the baseline". Beyond that, however, the ECB is keeping its options open for now, stressing its data-dependent, meeting-by-meeting approach. While we view one more hike expected by markets as a more likely scenario, we believe risks to the terminal deposit rate of 3.75% are skewed to the upside, given significant uncertainty about the inflation process and the central bank’s focus on lagging data.'

 

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