ECB Expected to Raise Rates
Our view is with the market, with a majority (66%) in this case that sees the ECB raising rates. Economists are split evenly on this. After 9 consecutive rate hikes, rates have gone up and this should be the 10th time and probably last time. Update: the ECB did in fact raise rates as we forecasted.
Even though core inflation has slowed down from 5.5% to 5.3% and inflation is on a downward tragetory overall, we feel that the pace is not quick enought for the ECB to stop hiking. Thus expect a 0.25% further rate rise today.
Further short-term pressure from higher energy prices and a stronger US dollar will push policy makers to error on the side of caution. Oil is priced in USD, thus more expensive for European consumers etc.
Monetary Policy Transmission
The ECB policy is having an effect on slowing economies. Additionally, we should not forget that the failed China rebound has put a break on European economic activity.
Thus, these two effects will slow the EU economies and this should be the last rate rise and we expect the policy committee look to reverse policy in some time in medium term – early 2024.