ECB leaves rates on hold, but the statement warned of inflation challenges as growth forecasts are cut and inflation forecasts lifted. The initial statement pretty much confirmed what Lagarde had signaled ahead of the meeting – Net asset purchases are set to end on July 1, rates are expected to be hiked by 25 bp in July and the central bank expects a further rate hike in September. That doesn’t totally rule out a 50 bp move in July, but signals that at the moment at least that is not the central scenario, although the statement already flagged that a larger step may be needed in September. So rather than front loading the tightening cycle, the ECB is keeping the bigger step for later, with the statement also flagging the likely need for additional gradual increases further out. The new staff projections see inflation at 6.8% this year, 3.5% in 2023 and 2.1% in 2024 – clear upward revisions and with the 2024 forecast a tad above the ECB’s target. Core inflation is expected to be even higher – at 2.3% in 2024. Growth forecasts meanwhile were revised down to 2.8% this year, and 2.1% in 2023 and 2024.
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With over 25 years experience working for a host of globally recognized organisations in the City of London, Stuart Cowell is a passionate advocate of keeping things simple, doing what is probable and understanding how the news, charts and sentiment work together to provide trading opportunities across all asset classes and all time frames.