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CNBC: Experts predict European Central Bank policy easing

26-1-2023 |

European Central Bank President Christine Lagarde has repeatedly used the phrase “staying the course” when referring to upcoming rate decisions, but some market watchers doubt the bank will keep its hawkish stance for much longer.

The ECB entered tightening mode last year with four rate hikes in an attempt to control high inflation across the euro zone. These decisions pushed the main deposit rate from -0.5% to 2%.

Recent data showed a two-month consecutive drop in headline inflation, but this is still well-above the ECB’s 2% target, hence several comments from ECB officials on how they need to keep raising rates, including Lagarde’s “we will stay the course to ensure the timely return of inflation.”

But ECB watchers are asking: for how long?

“Uncertainty is higher on the ECB’s moves after March, with a few hawkish Governing Council members indicating further hikes in the second quarter,” Francesco Maria Di Bella, fixed income strategist at UniCredit told CNBC via email.

“The size of those rate hikes will depend on the inflation outlook. Lower price pressure will probably allow the ECB to hike by 25 basis points, rather than 50, in May and June,” he added.

ECB Executive Board Member Fabio Panetta reportedly said earlier this week that the central bank should not pre-commit to any specific rate moves beyond its March meeting.

The ECB, which has been acting as the region’s central bank since 1991, has historically been more on the dovish side after many years of moribund inflation. But the energy crisis, strict supply chain issues, among other bottlenecks have driven prices higher across the bloc and led to a new tone from the central bank.

A Reuters poll released earlier this week showed that markets expected the ECB to pause rate hikes in the second quarter once its deposit rate is at 3.25%.

Source: CNBC