Lee Sue Ann, UOB Group economist, comments on the ECB’s latest interest rate decision.
Main conclusions
The European Central Bank (ECB) decided to raise its three main interest rates by 25 basis points. Following a total of 450 bp rate hikes, the ECB’s main official interest rates are now at historic highs.
According to the ECB’s new forecasts, inflation will go from 5.3% today to 3.2% next year and to 2.1% in 2025, which represents slow progress towards the 2% objective. Growth prospects have continued to worsen and the ECB now forecasts an expansion of just 0.7% for 2023, after having forecast 0.9% three months ago. By 2024, it expects the economy to grow 1.0%.
Although we believe that the door to future rate increases remains open, we prefer to maintain our view of a pause in the current tightening cycle, which implies terminal rates of 4.50%, 4.75% and 4.00% for the main refinancing operations, the marginal credit facility and deposit facility, respectively.
Source: Fx Street
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