Following the ECB quarterly report for the first quarter of the year, which showed a slowdown in monetary indicators, as well as further tightening of bank lending rules, as well as a further sharp decline in demand for loans, mainly due to ongoing concerns about the financial sector and After a significant rise in borrowing costs, the ECB capped the rate hike at its monetary policy meeting on Thursday to 25 basis points, as expected.
With regard to the future direction of monetary policy, the ECB has not taken any specific approach. Although he stressed in his official statement that “past interest rate hikes have been dynamically passed on to funding and monetary conditions in the euro area”, he nonetheless stated at the same time that “future decisions of the Governing Council will ensure policy rate setting at levels that are appropriately restrictive to achieve an early return of inflation to the 2% medium-term target,” leaving open the possibility of further interest rate hikes as inflation could remain high for a long time.
The ECB also announced that it plans to stop reinvesting under its Asset Purchase Program (APP) from July 2023, a decision that investors say could be seen as a trade-off to ease the pace of interest rate hikes due to uncertainty over the time delay. the intensity of the transfer of the past into the real economy increases.
An assessment of a lesser degree of tightening of the ECB’s monetary policy due to an increase in interest rates led to a downward revision of investors’ forecast for the term deposit rate to 3.55%, about 15 bp. below the corresponding forecast before the ECB meeting.
At the same time, the market sees the upward US interest rate cycle as closed as worries about US regional banks continue to grow and the Federal Reserve (Fed) did not mention a statement released on Wednesday following its decision to raise interest rates by 25 basis points. for “possible further tightening of monetary policy.”
* Department of Financial Analysis and Research of International Capital Markets of Eurobank.
Source: Kathimerini
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