(Finance) – The market expects a further rate hike in the Eurozone on May 4th. The Governing Council of the European Central Bank (ECB) is expected to raise official rates by 25 basis points, bringing the deposit rate to 3.25%, but some analysts are not ruling out the possibility of a 50 basis point move. Indeed, measures of financial stress have returned to levels prior to the American banking crises, while macroeconomic data show a re-acceleration of activity cheap and one stickiness of inflation below.
However, observers agree in the belief that there will continue to be no provision preventive address on official rates, confirming that the decisions will be taken meeting by meeting on the basis of the evolution of the data. Furthermore, the ECB could communicate a target for the reduction of the APP portfolio in the third quarter.
“The ECB is still in restrictive mode“, he points out Martin WolfburgSenior Economist of Generali Investments, pointing out that “recent comments from Governing Council members clearly suggest further rate hikes. The minutes of the last policy meeting revealed that some members were concerned about the optimism about reducing inflation in the projections of the ECB” and therefore “it is not surprising that President Lagarde recently stated that “there is still some way to go”, thus making a rate hike highly likely at this week’s meeting”.
However, central bankers will have to take note of the important data released this morning. Eurostat reported that inflation in the euro zone accelerated last month (to 7.0% in April from 6.9% in March), but core price growth unexpectedly softened (down to 7.3% from 7.5%). The ECB itself has announced that i bank loans to businesses and households of the Eurozone suffered a further slowdown in March, due to the increase in interest rates and the uncertainty of economic prospects.
Second Carsten BrzeskiGlobal Head of Macros for Eng, just released data on loan growth and results from the Bank Lending Survey support the decision to hike rates by 25 bps. “Weaker loan demand, tougher lending standards and already weak loan growth all point to a weakening growth momentum in the eurozone economy in the coming months“, highlights the expert.
As regards the turbulence of the banking sector, a certain relief comes from the United States, with the bailout of First Republic Bank, to be taken over by JPMorgan.
On the front of portfolio reduction, Intesa Sanpaolo expects the reduction to be accelerated to an average monthly €20-25 billion, which equates to a substantial halt in reinvestments.
“The ECB could decide to do further announcements on the quantitative tightening front during this week’s meeting,” he explains Annalisa Piazza, Fixed-Income Research Analyst at MFS Investment Management. “The Governing Council could compromise on further initiatives on withdrawing liquidity from the system (i.e. stop re-investments of APPs in H2) – he adds – Having said that, there seems to be broad agreement to keep the reinvestment of PEPP “.