The European Central Bank meet today.
Snapshot from our calendar shows no change to main policy is expected.
Awaiting moves in July according to most. This preview via ABN Amro (in summary from a longer piece):
- We have also raised our forecasts for the ECB’s main policy rate. We now expect five 25bp increases, in successive meetings from July, taking the deposit rate to 0.75% at the ECB’s February 2023 meeting. We previously expected two 25bp hikes in July and September, so this represents a significant change of view.
Citing, and see point 3 for comments on the euro:
- inflation has continued to accelerate beyond expectations
- even though there is not too much that the ECB can do about supply-side driven inflation, there is a general sense that a very accommodative monetary stance is no longer appropriate
- the upward revision to our profile for the Fed’s target range means that there would be additional downward pressure on the euro if the ECB does not continue to raise interest rates over the next few months. A weaker currency is undesirable in this environment, as it would add to imported inflation. Indeed, in contrast to the last few years, we now live in a world of ‘reverse currency wars’. To be clear, the ECB will not be able to prevent the euro from falling, but it can reduce the extent of the decline.
- The above factors have seen ECB officials step up their hawkish rhetoric over recent weeks. The more hawkish wing of the Council are pushing for 50bp steps, though we judge at this point that a majority are in favour of 25bp steps.
