By Katharine Neiss, Chief European Economist at PGIM Fixed Income
The ECB Governing Council did not surprise at its latest policy meeting, with a step-down in the pace of interest rate increases whilst retaining a hawkish tone with regards to too-high inflation. The increase in rates reflects the fact that inflation remains uncomfortably high. By way of contrast with the US Federal Reserve, the ECB ‘are not pausing’.
That said, the step down in the pace of interest rate rises is a signal that the ECB does not want to risk overdoing it, is seeing some signs that the economy is starting to cool, and mindful of spillovers from the US banking sector fragilities to European credit conditions. Perhaps more notable in today’s announcement was the expectation that the ECB expects to discontinue the reinvestments under its asset purchase programme as of this coming July.
This is a somewhat faster pace than suggested by the ECB’s latest survey of market participants. Our view is that, while the impact of balance sheet runoff is likely to be marginal relative to the increase in interest rates, it is contributing to tighter financial conditions and should help cool the economy to bring inflation back to target.
ECB wants discontinue the reinvestments under its asset purchase programme sooner than expected
Picture: Katharine Neiss (Quelle: PGIM Fixed Income)
