News & Feeds October 30, 2022

ECB Promises More Rate Hikes, But the Language Softens

The European Central Bank (ECB) raised its interest rate by another 75 basis points (bps) to 1.5% at the October meeting, bringing its policy rate now within the band of most estimates for a neutral configuration for the euro area, namely 1.25% to 2.0%. With an expected 50-bp rise to follow in December, we believe the ECB will likely transition towards moving in more conventional 25-bp increments next year, as the hiking cycle pivots from policy normalisation to policy tightening and with inflationary pressures expected to gradually subside. A peak policy rate of 2.7% now priced in by the market looks reasonable