The ECB should hike all three key interest rates by 25bp in its upcoming electing on July 21, according to economist Reinhard Cluse. Some members of the Governing Council (GC) might push for a 50bp hike in light of the weak euro, but the proposal is unlikely to get a majority support.
While the ECB is likely to present the key features of its new anti-fragmentation tool - the Transmission Protection Mechanism- in the meeting, the actual activation of the tool would depend on market conditions. The central bank should also address concerns on how it will adjust its policy stance if the economic outlook continues to women sharply, due to instances like further volume cuts to Russian gas flows.
- UBS Economics
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