ECB will stay the course and keep key rates at the peak level for longer

In Short

A 50 bps rate hike today and another one in March: At today’s meeting, the GC lifted its key rates by another 50 bps, thereby bringing the deposit rate to 2.5% and the repo rate to 3.0%, in line with expectations. It also almost committed to another 50 bps hike at the next meeting in March. Then it will “evaluate the subsequent path of its monetary policy.”

Highlights:

  • At today’s meeting, the ECB’s Governing Council (GC) lifted its key rates by another 50 bps, in line with expectations, and “intends” a further 50 bps hike for March. Thereafter the monetary policy path will be evaluated.
  • Starting in March, the APP reduction by € 15 bn per month will be done according to the redemption’s share of each sub-program. Regarding sovereign bonds (PSPP), this principle will also apply to the share of redemptions of each sovereign. Corporate bond reinvestments will be tilted towards greener firms. 
  • In the accompanying press conference, President Lagarde again adopted a hawkish tone in our view. She made clear that further hikes would be needed beyond March as there is still “ground to cover” and that rates should be kept at a sufficiently restrictive level to ensure inflation goes back to target. 
  • We continue to look for a further 50 bps hike in March, followed by two further 25 bps hikes in Q2, lifting the deposit rate to 3.5%. This is at odds with markets that somewhat scaled down their expectation and see the peak at 3.4%. 
  • Markets perceived today’s message as relatively dovish. In a knee-jerk reaction, equities gained, sovereign yields fell, and the EUR declined
     

Download the full report

ECB will stay the course and keep key rates at the peak level for longer
Picture

© Generali Investments, all rights reserved. This website is provided by Generali Investments and is considered as a marketing communication and financial promotion related to the products and services of the following companies belonging to the Generali group: Generali Asset Management S.p.A. Società di gestione del risparmio and Generali Investments Luxembourg S.A. (hereinafter jointly, Generali Investments). Moreover, the website may contain marketing communication and financial promotion of products and services of companies part of the multi-boutique platform coordinated by Generali Asset Management S.p.A. Società di gestione del risparmio and in particular of Infranity, Sycomore Asset Management, Aperture Investors LLC., Plenisfer Investments SGR, Lumyna Investments, Sosteneo Infrastructure Partners SGR and Generali Real Estate S.p.A. Società di Gestione del Risparmio