Research Briefing | May 20, 2022

Eurozone: ECB minutes indicate that July rate hike is a near-certainty

Eurozone: ECB minutes indicate that July rate hike is a near-certaintyThe minutes from the April ECB meeting confirm the hawkish tilt initiated a few months ago continues to gain momentum. With a majority of the council increasingly concerned about the inflation outlook, this makes an interest rate hike already in July almost certain. This should not come as a surprise, however, as recent developments render hawks’ case arguably easier to make.

What you will learn:

  • The ECB points to an imminent pick-up in nominal wage growth and the nascent signs of medium-run inflation expectations detaching from the 2% target.
  • These developments have prompted the hawks to call for action “without undue delay” and adjust interest rates toward the neutral position “sooner rather than later” in order to reassure markets of the ECB’s commitment to bringing inflation back to target and arrest any further pick-up in inflation expectations. 
  • The recent ECB communication, with a quickly-growing line-up of council members calling for faster policy normalization, makes an announcement of the QE exit by early Q3 at the June meeting a near-certainty, setting the stage for the first rate hike in July, with another two expected by end of year.

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