The ECB is on track to resume hiking rates in December
The ECB is waiting for more information before likely resuming raising rates in December.
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As seemed likely, the ECB kept the policy rate unchanged at 2½%. President Lagarde – who announced that she is stepping down after the February policy meeting – said the unanimous decision reflected the ECB waiting for additional information(*), as the “inter-meeting period will be information-rich”, although the Governing Council had “debated whether a hike was appropriate”, weighing up risks from higher energy prices and bond yields.
The ECB seems likely to resume raising rates at its final meeting for the year on 16-17 December. Policy rules point to another rate rise based on the ECB’s central economic scenario, although more hikes are possible given that inflation expectations have drifted up and market pricing is signalling a potentially higher neutral rate.
The ECB is watching the budget situation in France closely, as higher market interest rates could substitute for further rate rises, and the outlook would materially change if the public debt crisis snowballed. However, on our calculation, the ECB’s new financial conditions index has moved broadly in line with the policy rate to date.
In what seemed an unusual swipe at Fed Chair Warsh’s plan to drop one policy meeting next year and two meetings in 2028 to talk instead about strategy, Lagarde said, “we have no plan to restrict the number of meetings that will deal with monetary policy”.
(*) President Lagarde pointed out that by December the Governing Council would have “a new set of staff projections, … two new inflation prints, Q3 GDP, Q3 employment [and wages], two unemployment readings, two industrial production releases, the November PMIs, [and] two rounds of bank interest rate statistics”. Although Lagarde did not mention it, there will also be more news on the course of the Iran war.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment...
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