In March, the European Central Bank set as a benchmark the direction of its monetary policy after the first quarter, when it will have new growth and inflation forecasts in hand.

Thus, despite the fact that at yesterday’s meeting he continued to raise interest rates again by 50 basis points, as expected, and said that he intended (not committed) to raise them by another 50 basis points. On March 16, he stressed that it is not yet clear how he will move forward, opening the door to the slower pace of the tightening cycle that other major central banks are already doing or signaling they will do.

The ECB raised all three key interest rates by 50 basis points. Accordingly, interest rates on the deposit line, the main refinancing operations, as well as on the margin credit line were increased to 2.5%, 3.00% and 3.25%, respectively.

“Due to underlying inflationary pressures, the Board of Governors intends to raise interest rates by 50 basis points. at its next meeting in March, and then assess the course of its monetary policy,” the ECB said in a statement, thus heralding at least another significant increase, on the size of which, however, there is no unanimity in .S. “Compromise between members of the Board of Directors in decisions is the rule of the game,” ECB President Christine Lagarde commented on the related question from journalists during a press conference, while adding that “intention is not a 100 percent commitment”, explaining that the next increase ( after March) I’m sure, but maybe 50 m.p. or 25 bps as long as necessary to keep interest rates fairly restrictive and ensure a timely return of inflation to the 2% medium-term target. “It is very optimistic that the growth situation has improved and headline inflation is falling, but the main pressure remains high,” Ms Lagarde stressed, making it clear that the ECB is by no means finished with its work and the end of interest rate hikes. not close yet. This is also interpreted by the market as keeping interest rates high for a long time.

The ECB’s decision came a day after the Fed slowed the pace of hikes even further by raising rates by 25 bps. to 4.50–4.75%, although it warned of new increases. At the same time, this happened a few hours after the decision of the Bank of England to raise interest rates for the 10th time in a row by 50 bp. and at the highest level since 2008 (4%), while, according to analysts, it is clear from both the press release and new forecasts that it is slowly setting the stage for the end of the current tightening cycle with further growth, but at 25 bp should be expected in March.

Bonds

The possibility of a less aggressive ECB after March led to a rally in eurozone bonds, with German 10-year bond yields falling by 9% and 2.095%, while the improvement in the region was also significant thanks to new Greek 10-year yields. the annual falls by 6% to 4.05%, while the Italian 10-year fell below 4%.

“After another 50bp interest rate hike in March, we expect the inflation picture to change enough to persuade the ECB to switch to a smaller 25bp rate hike in the second quarter, with deposit rates peaking at 3. 50% in June,” notes Melanie Debono, chief economist at Pantheon Macroeconomics.