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📝Cable FX Macro Weekly Note: ECB Monetary Policy Meeting

**As seen in Risk In The Week 06/03/2022,

Now this. The ECB held policy unchanged back in April, since then, chatter on the central bank hiking rates and moving away from NIRP has been doing the rounds, I honestly did not expect to see this within my lifetime (blessed). As of now, the margin lending facility rate stands at 0.25% and the deposit facility is at negative 1/2 of a percent. Before rates are seen rising, the ECB announced the end of its asset purchasing program which was signaled to conclude somewhere in Q3, on this, the bank stated that the APP bond buying was set to fall by EUR10 Bln to EUR30 Bln in May and to EUR20 Bln in June. The ECB also mentioned that they must see 2% well before the end of the forecast horizon and that underlying inflation must be in line with its medium term goal. The ECB also sees the TLTRO III conditions ending in June, after this, they noted that APP purchases must remain data-dependent. On rate increases, the central bank said these would be gradual in an attempt to keep policy flexibility. Overnight index swaps see a cumulative 120bps of tightening by December as rate hike bets build and inflation reaches record highs in the eurozone, traders had only seen circa 90bps of tightening a month ago. Money markets expectations for both the ECB and Fed had narrowed as the Fed’s tightening expectations has been scaled down while the ECB tightening bets are pushed higher, the differential now stands at 77bps favoring the Fed, this is almost 100bps less than what was seen in early May. The desk at BofA sees the ECB delivering 50bps hikes in both July and September, the increments are set to be followed by 25bps moves in October and December. The analysts making this call said they have a strong condition that the ECB will deliver a total 150bps of rate hikes in 2022, however, they are less certain on when will the central bank increased the cost of money by 50bps. BofA sees two more standard moves coming in 2023, the desk is more hawkish on the ECB than the market consensus, but they remain bearish on the eurozone macroeconomic outlook. Analysts at Goldman Sachs stand on the other side of the hawkish balance, they foresee the central bank delivering 25bps rate hikes during the next couple of meetings as they note larger moves come with a high hurdle. Goldman sees the deposit rate ending at 1.5% by June 2023.



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