ECB makes clear that policy tightening is not yet completed

Highlights:

• At today’s meeting the ECB’s Governing Council (GC) lifted its key rates by another 25 bps, in line with expectations. It stated that future decisions will remain data-dependent and announced that rates “will be brought to levels sufficiently restrictive” and kept there “for as long as necessary”. 
• The GC also announced to stop reinvestments under the APP as of July but maintained its intention to continue reinvestments under the PEPP until “at least the end of 2024”. It became clear that the GC does not plan special facilities in light of the expiring big TLTRO (of € 477 bn) in June. 
• As in the previous meeting, inflation is seen as “too high for too long”. Price pressures are seen to stay strong, and it was noted that wage pressures had strengthened further. Concerns about second-round effects were growing. There were no concerns about the latest tightening of credit standards. 
• President Lagarde maintained the wording that there was “more ground to cover” and the GC implied that more hikes are ahead to become sufficiently restrictive. At today’s meeting the discussion was between 25 bps and 50 bps rate increases only.
• Looking ahead, we continue to expect a further 25 bps hike at the June meeting and see the ECB then stopping at 3.5% and leave it there until well into 2024. Risks are tilted to further hikes in our view. 
   

Download the full publication below