ECB not yet done with rate hikes

Today represents the seventh consecutive meeting hike in this cycle

04 May 2023

In contrast to the Federal Reserve’s (Fed) implication yesterday that it is close to, if not at the end of, its hiking cycle, Madame Lagarde at the European Central Bank (ECB) said it is not done yet at today’s council meeting. Hiking 25 bps to 3.25% represents the seventh consecutive meeting hike in this cycle and was as widely expected.

With forward guidance having been removed from press conferences, it was perhaps something that Lagarde offered up that the ECB sees more hikes down the line considering its new found data-dependency. Markets are expecting one, perhaps two, more quarter point hikes as inflation finally seems to be moving in the right direction, but also credit conditions have tightened which adds to the restrictive monetary actions of the ECB.

One note of caution: the ECB does not feel that rates are sufficiently restrictive yet - maybe it is jawboning the markets, maybe not. An economic downturn will certainly feel restrictive and if bank lending surveys are anything to go by, there is a clear disconnect between softening consumer and corporate demand for loans and continuing to hike rates into a slowdown.