ECB will slow the pace of tightening from here – TDS

The European Central Bank raised interest rates by 75 basis points on Thursday as expected. According to analysts from TD Securities expect the ECB to hike 50bps in October, and 25bps at each of the three meetings from December to March, reaching a terminal of 2.00% at that meeting.

Key Quotes: 

“Today's decision suggests that the ECB will slow the pace of tightening from here as it heads toward (and indeed possibly above) the neutral rate, which by most accounts lies somewhere in the 1-2% range. We expect the Governing Council to hike rates by 50bps in October, and 25bps at each of the December, February, and March meetings. This leaves the Depo Rate at 1.50% by year-end (in line with our prior forecast), and 2.00% by March 2023. From there, we expect the ECB to leave policy on hold until 2024, when it likely cuts rates back toward the mid-point of the neutral range.”

“Our forecast is for one more hike than President Lagarde suggested at the press conference, but given the meeting-by-meeting nature of the ECB's decision-making framework, and the ease with which they have eschewed guidance in the past, we'd put little weight on her specific timeline of hikes at this stage.”