The ECB seems to be ready the day after Thursday to decide on another significant increase in interest rates. What happens next is not so certain. Speaking recently at Davos, ECB President Christine Lagarde stressed the need for monetary policy to “stay the same”. “ECB officials believe they need to fight inflation and will stop the whole process when they see an improvement in its forecast,” said Karzen Brzeski, director of global macroeconomic analysis at ING. There are some questions about what will happen on Thursday. Initially, a 50 basis point hike to 2.5% is seen as a foregone conclusion, so markets will focus on what Lagarde has to say. “The ECB needs to be aggressive,” said Ion Walsh, partner at TwentyFour Asset Management. “I don’t know if Lagarde will say that the market is pricing the final rate too low, but I expect her to repeat that the ECB will keep raising rates.”

The next question is whether the Bank will send any message to the March meeting and beyond. Markets are hoping for this because what happens after Thursday is up for debate.

Some ECB officials, including the Dutch and Slovaks, support a big rise in March. Lagarde’s comments suggest that she shares this view. The hawks are pushing for a rollback as core inflation eases.

Italian Fabio Panetta believes that the ECB should not take any concrete steps after February. “Recently there have been questions about why the markets do not understand what the ECB will do next,” said ING’s Brzeski. “One of the explanations has to do with the over-optimism of the markets, but there is also the issue of confusion in ECB communication and who we should listen to.” Another question is whether more detailed information on quantitative tightening should be given.

The ECB plans to cut the number of bonds it buys under its Asset Purchase Program (APP) by 15 billion euros a month from March to June. UBS expects the ECB to reiterate that the pace of quantitative tightening after June will be decided later. Of course, many are still wondering how quickly inflation will de-escalate, although this is not clear and it is difficult to predict its course.