ECB slows pace rate hikes
2022.12.15 08:54
ECB slows pace rate hikes
Budrigannews.com – On Thursday, the European Central Bank announced plans to reduce its bloated balance sheet beginning in March 2023 in order to contain inflation. This was the bank’s fourth increase in a row in interest rates.
New economic projections indicated that it would still take years to bring price growth back to 2%, so the central bank raised its deposit rate to 2% as anticipated and kept further increases on the table.
ACTION ON THE MARKET:
FOREX: The euro was up from $1.0624 just prior to the ECB’s rate decision, but it was down 0.3 percent on the day against the dollar at $1.0651.
BONDS: The German 10-year Bund yield increased by 10 basis points on the day to 2.03%, up from 1.94 percent prior to the move. Italian 10-year bond yields increased by 22 basis points to 4.22% STOCKS: In the end, the region-wide index fell 1.53 percent.
COMMENTS:
SALTMARSH ECONOMICS, LONDON, EUROPEAN ECONOMIST MARCHEL ALEXANDROVICH:
The ECB’s statement is extremely hawkish. One thing that stands out is that they still expect inflation to be higher than the target in 2025.
More ECB raises rates to fight inflation
“The 50 bps climb was normal and the speed of QT (quantitative fixing) was in the vicinity of what people were anticipating.
“The main message appears to be that the existing tightening is not sufficient, and that more needs to be done, despite weaker growth projections.”
ALEX LIVINGSTONE, TITAN ASSET MANAGEMENT, LONDON, HEAD OF TRADING:
“The market pricing for greater sustained price pressures in the UK and Eurozone over and above the US, catalyzed most prominently by higher energy costs, resulting in supply side weakness is currently being priced in at 4.8% in the US, 4.4% in the UK, and 2.8% in the Eurozone.
“Growth will now be a pressing concern on Jerome Powell’s agenda due to price pressures being too moderate in the US and the bellwether of the 2-10yr US yield curve flashing at the most inverted level in over four decades. While we appear to be out of the woods for the Eurozone and the UK, the necessary tightening of financial conditions appears to be set to weigh on equity and bond returns.”
BAS VAN GEFFEN, RABOBANK, UTRECHT, SENIOR MACRO STRATEGIST:
“The communication surrounding the decision was clearly more hawkish than many in the market may have expected, despite the fact that the hike itself was as anticipated—only 50 basis points and slower than it had been in the previous months.”
“Even though the ECB is taking it a little slower now, this does not necessarily mean that they will also aim for a lower terminal rate. At this point, I believe it is still safe to say that the first meeting next year should be expected to increase by 50 basis points.
They hiked as anticipated, but they provided a little bit more information about their policy early next year or even later, which overall is more hawkish than some of the market may have anticipated.”
