abrdn: Signals ECB to end current raising cycle

abrdn: Signals ECB to end current raising cycle

July 27, 2023

ECB
ECB Europees Centrale Bank.jpg

Felix Feather, Economist at abrdn, responds to today's ECB's intereste rate decision.

'The ECB’s hike today was widely expected, having been signalled at the last meeting of the Governing Council in June.

But there are signs it is ready to bring its current hiking cycle – the most aggressive in its history – to a close. This is revealed by a slight but important change to the wording of the Monetary Policy Statement. No longer will rates 'be brought to sufficiently restrictive levels', they will be 'set at sufficiently restrictive levels'.

While the door is open to pause in September, it isn’t shut to another hike either. The decision will be data-dependent. We expect the data to be soft enough to warrant a hold, with underlying inflationary pressures easing and activity continuing to weaken as the full effect of past tightening feeds through to the economy.

However, the decision is clearly a marginal one, and investors will have to monitor the data flow closely if they wish to anticipate the ECB’s next move. Key data points include the publication of ECB projections and two months of CPI reports.'

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