Research Briefing | Jul 21, 2022

Anti-fragmentation tool allows ECB to front-load rate hikes

The ECB’s decision to hike rates, abandon forward guidance and introduce an anti-fragmentation tool appear to reflect a balancing act between the more hawkish and dovish council members as well as between the upside risks to inflation and the increasingly clouded growth outlook. On balance, we think the outcome of the meeting is a net positive and marginally dovish.

What you will learn:

  • Granted, the ECB council surprised us and consensus expectations by starting its first rate hiking cycle in over a decade by raising its main policy rates by 50bps.
  • This defied its own forward guidance from June of an intended 25bps move.
  • The council effectively abandoned forward guidance, moving back to data-dependent meeting-by-meeting decisions, something we had flagged as an option.
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