La Française: An anticipated pause

23 oktober 2023

Monetair beleid ECB

As alluded to during its September meeting, we expect that the Governing Council (GC) will leave its interest rates unchanged at the October meeting.

Please find below what we expect:

The European Central Bank (ECB) to maintain its key interest rates: 4.0% for the deposit rate and 4.5% for the Refi rate. Underlying inflation (i.e., excluding energy and food) is trending downwards but remains far from the 2% target rate. The latest rise in European bond yields, linked mainly to the surge in US treasuries since September, is tightening monetary conditions and should weaken the growth trajectory of the Eurozone.
The GC to maintain the meeting-by-meeting approach given the high level of uncertainty (wage growth dynamics, energy price pressure namely due to the impact of the Middle East conflict on oil prices). Hence, President Lagarde will likely warn that the ECB is ready to hike rates again if necessary.
Christine Lagarde to reiterate that the central bank will keep interest rates high for as long as necessary until ECB officials are ‘sufficiently confident’ about reaching the 2% inflation target within the projected horizon (by 2025).
On quantitative tightening, discussions will likely intensify given the latest comments from ECB hawkish officials. However, we do not expect further details concerning the reinvestment of securities under the Pandemic Emergency Purchase Programme (PEPP), especially before the ECB has concluded its review of the operational framework in the spring of 2024.

In summary, we expect:

that the ECB’s communication will focus on higher-for-longer interest rates in order to achieve the central bank's key objective of bringing inflation back to its 2% target by the end of 2025;
that the European Central Bank will keep the door open to further rate hikes in the future, given upside risks on inflation. We also believe that this intermediate meeting will have a limited impact on financial markets.

Gerelateerde berichten