ECB Review - February 2023: Penciling In 50bp For March

ECB Review - February 2023: Pencilling In 50bp For March

With the main policy announcement of the February GC meeting well-telegraphed in advance, the decision to hike again by 50bp came as no surprise. The two main unknowns were the additional technical details of the QT programme and communication on the post-February policy rate path.

The ECB announced that balance sheet normalisation would involve “partial reinvestments will be conducted broadly in line with current practice. In particular, the remaining reinvestment amounts will be allocated proportionally to the share of redemptions across each constituent programme of the APP and, under the public sector purchase programme (PSPP), to the share of redemptions of each jurisdiction and across national and supranational issuers.” Furthermore, the ECB will effectively ‘green’ the corporate bond portfolio with the remaining reinvestments “tilted more strongly towards issuers with a better climate performance”.

The most significant of the two unknowns as the communication around the policy rate path. We had expected the ECB to hint at another 50bp in March with President Lagarde delivering: “In view of the underlying inflation pressures, the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March and it will then evaluate the subsequent path of its monetary policy.”

For the full publication please see:

ECB Review February 2023.pdf