ECB: Waiting for another two increases of 25 basis points — Rabobank

Thursday, the European Central Bank raised its official interest rates by 50 basis points, as expected. Rabobank analysts they anticipate another two rate hikes of 25 basis points.

More ground to cover

“Despite the market turbulence, the ECB maintained the 50 basis point hike it had announced in advance, as inflation is still considered too high. This reinforces the ECB’s commitment to bring inflation back on target, although we believe that markets are underestimating the terminal rate after the meeting.To the extent that this is due to financial stability concerns, the ECB made it clear that eurozone banks are resilient.If it is nonetheless intervention is necessary, it will be done in such a way that it does not conflict with the price stability mandate.”

“Significant uncertainty forced the ECB to abandon forward guidance entirely.”

“We stand by our forecast for two more 25 basis point hikes. Continued malaise in financial markets is the main downside risk, but if this fades, continued inflation could still call for higher rates.”

“President Lagarde made it clear that the fight against inflation is not over. However, markets are reluctantly repricing rate hikes. This weak response was perhaps the best the ECB could hope for at the moment. When After calm returns to the markets, the Council will be able to gradually adjust the expectations of monetary policy. We maintain our forecast of another two increases of 25 basis points”.