Markets refuse to “listen” to the aggressiveness of the European Central Bank, believing that in its attempt to avoid another policy or rhetorical error – for example, when it predicted that the inflationary explosion was a temporary phenomenon – it overreacts and prefers to decide for itself on the economic outlook. , thereby siding with the “doves” of the board of directors, even if they are a very small minority. The announcement of the intention to raise interest rates again by 50 basis points in March caused a furore among those who “follow” the ECB, the so-called “ECB watchers”.

So far, the ECB has not announced the size of the next increase in its decision announcement, even if Christine Lagarde gave clear signals in her press conferences as to what it would be. Moreover, despite the fact that the ECB officially abandoned the concept of forward guidance, it again made a “promise”. According to K’s sources, although there were no disagreements in the board of directors. As for the size of the February increase, there was controversy over reporting a specific amount for the March increase.

As Peter Pret, former chief economist at the ECB, told Bloomberg TV, “I was surprised by the intention to raise 50 basis points. A lot of news may appear between now and March. Who knows what will happen?

The explanation lies in the fact that the hawks put a lot of pressure to include this phrase in the announcement, K sources say, to emphasize that the aggression persists, and not be interpreted by the markets as a retreat, a disregard for the arguments from a few doves that did not agree. The pigeons base their position on the fact that inflation has improved significantly, which was also confirmed at the Board meeting. last Wednesday, when Eurostat released preliminary data on inflation in January, which showed that it had fallen to 8.5%. This did not sit well with the hawks, and especially with the central bankers of the Baltic countries, which are experiencing very high inflation. “It all comes down to a balance between hawks and doves at the moment. “The hawks want to push for faster rate hikes, and to prevent them, the doves must agree in advance to future rate hikes,” said K. HSBC economist Fabio Balboni. “It is interesting that the ECB has not taken on anything after March, it will simply reconsider its policy. So while Lagarde has said that the rate hike will continue, we still believe the hike could be put on hold after that,” he adds.

While the central bank clearly wants higher borrowing costs, so it doesn’t deviate from its hawkish rhetoric and is slow to point it out when it sees market prices “weakening”, bonds have risen a lot lately and yields have fallen. significant compared to 2022 highs. In addition, the market estimates the final interest rate of the ECB is now at 3.3% compared to 3.5% before the February meeting.

As analysts explain, the market prefers to look for signs of lower inflation and the cessation of interest rate hikes, so the aggressive rhetoric of the ECB remains muffled. In fact, he already believes that his latest forecasts (December) for inflation (6.3%) and energy prices this year (average €124/MWh for natural gas) are “invalid” and will be revised down in March.

“The market is moving at a pace of falling inflation and reacts much more strongly to any deflationary signals and dovish comments from the ECB. Her reaction during the February meeting was an example of selective hearing, ”said Jan von Gerich, chief analyst at Nordea Research, in K. According to him, the improvement in bonds will continue: “The leadership of the central banks and, in particular, the ECB, have made many mistakes in the current cycle, and in this context the market is more free to make decisions. Thus, the decline in bond yields may continue in the near future if the data confirms the weakening of inflation, which seems very likely.”