LONDON—The European Central Bank raised interest rates for the eighth successive time, as expected, on Thursday and signalled further policy tightening, as it battles high inflation.
Market Reaction:
STOCKS: European stocks were down 0.6 percent on the day, compared with a 0.4 percent drop just before the ECB decision.BONDS: Government bond yields retreated from the day’s highs, Germany’s two-year yield last up around 9 basis points at around 3.135 percent, versus 3.15 percent just before the rate decision.
Comments:
Anna Stupnytska, Global Macro Economist, Fidelity International, London:
“The main question going into this meeting was the ECB’s guidance on how much further they expect to raise rates from here. President Lagarde’s message on the next step was clear—the ECB is expecting to continue hiking rates in July ‘barring a material change to the baseline’.”Mohit Kumar, Chief European Economist, Jefferies, London:
“The statement was on the hawkish side, with the ECB raising inflation projections for the 2023–25 period. More important, core inflation expectations were revised materially higher.”Sebastian Vismara, Global Macro Economist and Strategist, Bny Mellon Investment Management, London:
“The euro is appreciating and short rates have moved higher so there’s a bit more hawkishness in the front end of the curve. The market is interpreting this as hawkish, not necessarily the hike itself, but what it’s communicating in terms of the outlook.Colin Asher, Senior Economist at Mizuho, London:
“The surprise is the revision up in the inflation forecasts, which were higher across the board, but they’ve especially increased their core CPI forecast for next year. They are clearly more concerned that inflation will take a longer time to come down.”Bas Van Geffen, Senior Macro Strategist, Rabobank, Netherlands:
“We’ve seen a decision that has actually been fully in line with expectations. The 25-basis-point hike is not a surprise.”Carsten Brzeski, Global Head of Macro, Ing, Frankfurt:
“The fact that the ECB’s newest staff projections include an upward revision of both headline and core inflation across the entire time horizon must have strengthened the case for continued hiking.”Nathaniel Casey, Investment Strategist, Evelyn Partner, London:
“The decision to raise the deposit rate by 25 bps came as no surprise to markets as preceding rhetoric from policy makers outlined that ‘we have not reached the end of the rate-hike cycle’ yet.”Piet Haines Christiansen, Chief Strategist for the Ecb, Danske Bank, Copenhagen:
“Clearly ‘inflation has been coming down but is projected to remain too high for too long.’ This is an acknowledgment of recent developments but also a concern for the inflation outlook.”Ipek Ozkardeskaya, Senior Market Analyst, Swissquote Bank, Switzerland:
“No surprise, the ECB was broadly expected to raise rates by 25 bps today. Devil will be in the press conference: will the ECB keep its hawkish stance despite easing inflation and deteriorating economic outlook, or will the bank soften its hand?”Stuart Cole, Chief Macro Economist, Equiti Capital, London:
“It was fully expected, given that (ECB chief Christine) Lagarde had already said a couple of weeks ago that interest rates needed to be raised further to bring CPI back to target.”Arne Petimezas, Senior Analyst, Afs Group, Amsterdam
“Mixed statement: ECB acknowledges ’tentative' improvement in core inflation and sees proof of monetary tightening cooling economy and prices gradually. On the other hand, ECB staff raised core inflation forecasts. The latter could explain why yields extended increases post-ECB. There is no interest rate guidance in the statement, except the generic statement that the ECB will review its stance at each meeting.”“The market reaction is overblown and that yields should move off the highs. Given the positive inflation and producer price surprise and the monetary slowdown, the ECB will do one more rate hike. They can’t take a third rate hike off the table though, because something close to a majority wants optionality with regards to a third hike. Hence, the hawkish market response after the Fed wake-up call.”