ECB Preview: What do experts expect?

Investing.com — This week, investors’ attention is focused on central bank meetings. In the case of the , forecasts point to a 25 basis point (bp) hike.

Germán García Mellado, fixed income manager at A&G said that a 25bp hike seems pretty much discounted for this meeting leaving the deposit facility at 3.5% and the main refinancing operations at 4.0%. He added that, in turn, it should pave the way for another additional quarter percentage point hike in July.

García Mellado further explains that they will have to see the positioning between now and then, as, according to statements from Governing Council members, opinions are sharply divided on whether or not they will implement another additional increase at the turn of the summer. He adds that, in any case, the market is already partly pricing in this possibility (three hikes from current levels), so it would have a moderate impact on bond valuations.

Kevin Thozet, a member of Carmignac’s investment committee, notes in an e-mailed commentary that although the European monetary tightening cycle started four months after the Fed’s, without major setbacks, it is making itself felt.

For him, the level of inflation remains high (6.3% in Germany and 5.1% in France for total year-on-year inflation). These levels require constant vigilance. 5% is a particularly important threshold, associated with a greater homogeneity of price increases between goods and services and a stronger linkage with wages. He added that the rigidity of the European labor market is also leading to greater inertia on the wage front, which is growing at a rate of 5% year-on-year.

More and more hikes?

Many experts not only predict a rate hike at this June meeting, but also venture that the agency could continue to raise interest rates at future meetings.

García Mellado adds that, what is practically certain is that the Monetary Authority will continue with the message of going ‘meeting by meeting’ to leave all possibilities open in the face of the data that will be published.

Thozet concludes that it is also likely that at the July meeting the European monetary institution will raise its deposit rates by 25 basis points, possibly for the last time if the disinflationary trend is confirmed. He adds that, in this regard, Christine Lagarde has (so far) managed to complete her monetary tightening cycle without any cracks materializing in the system, despite the fact that a year ago it was said that the region was the least prepared to face a tightening cycle.

Ruben Segura-Cayuela, chief economist for Europe at Bank of America adds, “We expect a 25bp hike from the ECB this week, with a message of more to come. The ECB is likely to be vague on whether that means one or several additional hikes; there is little pressure or need for such a signal this week. Forecasts are likely to continue to feed divisions, with higher near-term core but medium-term inflation at target.”

The prospect of a pause on the part of the ECB is thus receding. In fact, according to a recent report by Japanese bank Nomura, the ECB will not cut rates until the fourth quarter of 2024. According to them, Lagarde has stated many times that the ECB does not stand still, in contrast to the Fed, and that the ECB still has some way to go.

(Translated from Spanish)

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