Columbia Threadneedle: ECB keeps door open for further interest rate increases

Columbia Threadneedle: ECB keeps door open for further interest rate increases

October 26, 2023

Interest Rates ECB
Rente (04) inflatie

Alexander Batten, Fixed Income Fund Manager at Columbia Threadneedle Investments, comments on today's ECB meeting.

The ECB kept rates on hold today, a decision that had been well telegraphed by ECB members and fully priced by markets. The door remains open to further hikes, however, given the growing evidence of, and the ECB’s confidence in, monetary policy transmitting into economic activity. But we think it is unlikely that this option will need to be exercised.

There had been speculation heading into the meeting about bringing forward the end date for reinvestments of redemptions from the PEPP program, currently scheduled to continue until the end of 2024. No such discussion took place in the governing council, where the recent tightening of financial conditions from steeper curves and wider periphery spreads would have reduced the need to add additional monetary tightening into the mix.

The end of monetary policy tightening cycles is normally a positive for bonds. As such, our funds are positioned long of duration in line with our view that policy rates are likely at a peak, albeit in modest size given the uncertainties around what has been a unique economic cycle. Where we have greater confidence is that the yield curve should continue to steepen, either through the weight of government bond supply or the onset of a policy loosening cycle at some point next year.

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