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ECB ready to hike, just not today
Despite another stretch higher in oil prices, markets are sticking to the view that the European Central Bank will hold the deposit rate at 2.25% at this meeting, in line with our own thinking. September is more likely to see a hike, and indeed markets are pricing in 23bp then. One could argue that front-loading another hike now makes sense. Over the past few years, however, the ECB has not acted without fully telegraphing a move in the weeks before the meeting. With longer-term inflation expectations still well-anchored, the ECB can hold rates steady for now. The 10Y inflation swap rose on the back of higher oil ... (full story)
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The Governing Council today decided to keep the three key ECB interest rates unchanged. The outlook for energy prices, while highly volatile, currently stands close to the baseline of the June Eurosystem staff projections and well above the levels recorded prior to the conflict in the Middle East. Uncertainty remains high and the full inflationary impact of the energy shock has yet to play out. The Governing Council is therefore closely monitoring the intensity and duration of the shock, as well as its indirect and second-round effects. The Governing Council is committed to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term. Ecb Interest Rate Decision (jul) Actual: 2.40% Vs 2.40% Previous; Forecast 2.40% Ecb Deposit Facility Rate (jul) Actual: 2.25% Vs 2.25% Previous; Forecast 2.25% Ecb Marginal Lending Facility Actual: 2.65% Vs 2.65% Previous; Forecast 2.65% ECB not pre-committing to a particular rate path ECB: Outlook for energy prices, while highly volatile, currently stands close to baseline of june Eurosystem staff projections and well above levels recorded prior to conflict in Middle East. 
ECB keeps interest rates on hold, avoids rattling markets The European Central Bank just decided to keep interest rates unchanged. Through the rearview mirror, this decision clearly makes sense. Headline inflation has actually come down, there are very few signs of knock-on effects from higher energy prices, and the eurozone economy has shown some resilience to the current oil price shock. It’s only survey-based inflation expectations that have gone up and will be a concern for the ECB. Looking ahead, however, the decision of whether to keep interest rates unchanged is not so straightforward. In fact, the latest increase in energy prices has actually pushed the ECB closer to its more severe macro scenarios, calling for another rate hike – at least when following the ECB’s own logic and reaction function, presented at the June meeting. Unless oil prices start dropping significantly over the next weeks, the ECB’s own macro projections in September will call for another rate hike, loud and clear. Against this background, the ECB could have also opted for a rate hike today, following a 'never put off until tomorrow what you can do today' principle. Instead, it seems the central bank got cold feet and didn’t want to break the well-established tradition of never surprising markets that has developed in recent years.
ECB keeps interest rates on hold, avoids rattling markets The European Central Bank just decided to keep interest rates unchanged. Through the rearview mirror, this decision clearly makes sense. Headline inflation has actually come down, there are very few signs of knock-on effects from higher energy prices, and the eurozone economy has shown some resilience to the current oil price shock. It’s only survey-based inflation expectations that have gone up and will be a concern for the ECB. Looking ahead, however, the decision of whether to keep interest rates unchanged is not so straightforward. In fact, the latest increase in energy prices has actually pushed the ECB closer to its more severe macro scenarios, calling for another rate hike – at least when following the ECB’s own logic and reaction function, presented at the June meeting. Unless oil prices start dropping significantly over the next weeks, the ECB’s own macro projections in September will call for another rate hike, loud and clear. Against this background, the ECB could have also opted for a rate hike today, following a 'never put off until tomorrow what you can do today' principle. Instead, it seems the central bank got cold feet and didn’t want to break the well-established tradition of never surprising markets that has developed in recent years.
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- Jul 23, 12:33am | 5 hr ago Posted byFundamental Analysis1,823
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