ECB Review: 50bp and TPI but the hiking cycle is set to be short

ANALYSIS | 07/21/2022 16:28:00 GMT

Today, the ECB announced its first rate hike in 11 years to fight off inflationary pressure. It hiked the three policy rates by 50bp in a unanimous decision, thereby deviating from its previous guidance of 25bp at the Sintra conference. There will be more rate hikes but the size will be set meeting by meeting and the previous guidance therefor no longer applies.
The ECB also announced a new anti-fragmentation tool, the so-called Transmission Protection Instrument (TPI). Tomorrow's survey of professional forecasts may also show a high inflation expectation justifying the larger move.
The ECB's assessment of growth and inflation outlook was broadly unchanged from June.
We are gloomier on the economic outlook, which ultimately is set to take inflation expectations lower than the ECB conveys. We no longer expect the ECB to hike policy rates in Q1 next year. We expect the ECB to hike by 50bp in September and 25bp in both October and December. We see risks slightly skewed to fewer hikes. That means that we anticipate a cycle hike of 1% on the deposit rate.

Share: Analysis feed

This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.