SSGA: 25 bps calms market as effects of bank stress emerge

SSGA: 25 bps calms market as effects of bank stress emerge

4 mei 2023

Monetair beleid Banken
Koersgrafiek (07) koers pijl omlaag daling crisis

The ECB delivered a dovish 25 basis points (bps) hike today, in line with current market pricing.

The first drop in the core inflation reading since June last year, as well as the latest quarterly bank survey showing the most tightening of credit standards since the region’s debt crisis in 2011, appeared to have swayed the decision.

In the end, downshifting to 25bps was the path of least resistance, allowing the ECB to continue to show resolve in the fight against inflation while keeping one eye on financial stability risks. Arguably, this 25bps hike gives the Bank the optionality they need going forward given the dual risks of growth and inflation.

However, today’s decision was perhaps the most “in the balance” since the current hiking cycle began. We saw some persistence in inflation – with the headline number moving back up on the latest read and services inflation remaining sticky – as well as recent data showing that rather than easing as anticipated, the labour market appeared to have tightened again, making any increase in unemployment in the short term very uncertain. In the end, lingering concerns on the variable and lagged effects of previous actions, as well as continued issues around the banking sector (although still focused on the US), led to the more dovish 25 bps increase.

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