MNI ECB Preview - September 2022: Hiking By Less Than 75bp Could Be Risky For The ECB

Hiking By Less Than 75bp Could Be Risky For The ECB

• It is a close call, but we expect the ECB to hike by 75bp at the September meeting.
• With inflation getting closer to double digits and the ECB already well behind it peers, hiking by ‘only’ 50bp could risk undermining the perceived commitment to restoring price stability.

Despite dropping forward guidance given the current heightened degree of uncertainty, the ECB’s position on the policy rate path is relatively clear. There has been a notably hawkish shift since the July meeting, hiking in 25bp increments is no longer being discussed and the terminal rate is likely to be in the 1-2% range. So, we know that the ECB is in tightening mode and we have a reasonable idea of where the GC would like to get to (in the first instance). The two substantial unknowns are the pace of tightening and whether or not the ECB would continue hiking into a recession.

As others have commented, the September decision is finely balanced, but we come down on the side of a 75bp move. Inflation continues surprising higher, European gas prices have soared, the Fed has set a precedent by recently hiking in 75bp increments, and the window of opportunity to frontload rates in the euro area is narrowing.

For the full publication please see:

ECB Preview September 2022.pdf