“We expect a showdown between the ECB and markets,” said Nomura economist Andrzej Szczepaniak. “It is clear that markets appear eager to challenge the ECB’s ‘multiple 50 basis point hikes’ mantra.”
ECB’s Lagarde Says ‘Stay the Course’ Is Her Policy Mantra
Swaps indicate a half-percentage point rate rise next Thursday is a done deal, which would take the deposit rate to a 15-year high of 2.5%.
Yet traders see just a 70% chance of another 50 basis point hike in March and then begin to price in cuts to the key rate from around September.
According to Florian Ielpo, head of macro at Lombard Odier Investment Managers, the ECB and Fed need to keep ramming home the message that the war on inflation isn’t over.
“Their job is to convince markets that the rate cuts that have been priced have no place to be there,” he said.
Bloomberg 28 januari 2023
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