(Tiper Stock Exchange) – The ECB confirmed today a rate hike of 50 basis pointscarrying the repo rate at 3% and that on deposits at 2.%, very far from the interest rate levels in the USA and UK, yet a sharp increase compared to the zero rate policy followed in recent years. The Board also informally confirmed a new increase of this size in Marchwhile reiterating that it will follow an approach whereby decisions will be made at each meeting based on data.
There President Christine Lagardeduring the press conference, specified that there was broad consensus within the Board on the decision to raise rates, because “keeping interest rates at restrictive levels will reduce inflation over time” and “it will also protect against the risk of a persistent upward shift in inflation expectations”. But at the same time, the number one of the Eurotower he gave no guarantees about next moves and, if March is (almost) certain that there will be another 50-point increase, what will happen from april?
There market reaction was eloquent, i government bond yields plummeted and so the Spread. The yield of 10-year BTP fell more than 50 points to 3.75%, while the Bund touched 2.02%, with one Spread down to 173 points. By contrast, the stock markets flew, with Business Square which closed up 1.5% and Frankfurt by more than 2%.
Second Intermonte saw one today Lagarde in the “falcon in the process of softening” version. “The press release declares the intention to proceed with another increase of 50 points – explains Antonio Cesarano, Chief Global Strategist of Intermonte – followed by the clarification “Intention isn’t 100% commitment”. the intention of the hawks is to raise by 50bp but it is also possible to opt for 25bp“. Lagarde then added that after the decision in March we will see if and how to continue, but also the intention to keep rates in restrictive territory for some time. For restrictive territory, he hinted that the deposit rate should hover just above 3%.
For Frederik Ducrozet and Nadia Gharbi of Pictet Wealth Management there is a certain “irony” in what has materialized today in front of the markets and it would seem that we can speak of one “Dove-like market reaction” and of an ECB and a Fed that have not appeared “more hawkish” than expected.
For money farm, “Although inflation has shown the first signs of slowing down, the battle is still far from being declared won and the markets expect approx three more hikes before reaching the final rate, with an increase of another 50 basis points already declared for March”. prices are partly under control, or at least at risk of an upward spiral, generating speculation about a relatively more accommodative monetary policy”.
“The end seems to be near and the markets have perceived it”he comments Columbia Threadneedle Investmentsnoting “if even the March meeting looks stuck at +50 basis points, global conditions could be very different when the commission meets in mid-June” and therefore “the Central Bank could find itself alone in continuing to pursue a monetary policy in restrictive territory”.
Also Annalisa Piazza di MFS IM believes that “the market appears to be interpreting the lack of commitment beyond the March meeting and the now ‘balanced’ risks to growth and inflation as signs of a more accommodating policy and yields are falling sharply on all the main curves of European government bonds”. “Lagarde was also very forthright – it underlines – in admitting that political decisions are a compromise and, this time, it seems that the compromise was to confirm the path for the brand new mandate, however leaving the door open to any scenario from April onwards”.