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MNI BCB Review - September 2022: Higher-For-Longer

Executive Summary:

  • BCB kept policy rates unchanged at 13.75%, alongside expectations
  • Rate decision confirms the end of the tightening cycle – for now
  • Bank again stress that risks “remain in both directions”
Full Review here:

MNIBCBRevSep22.pdf

The BCB kept rates unchanged at 13.75% late Wednesday, broadly inline with expectations. Nonetheless, there were outside calls for one final 25bps hike to end the tightening cycle. The vote split showed a minority opted for a final hike, with two directors going against the headline decision – marking the first split decision among the board in six years.

Focus turns to how long the BCB will keep rates at this level, as the board tilt toward a higher-for-longer strategy and look to hold rates for a “sufficiently long period”. Nonetheless, upside risks of inflation were acknowledged, with the statement adding that they will not hesitate to resume a tightening path should the “disinflationary process not proceed as expected”.

Consensus is beginning to form around a prolonged holding phase for the bank’s policy cycle, with analysts beginning to eye a return to rate cuts from the midpoint of 2023 onwards.

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