Danske Bank: ECB Could Raise Rate Hike Likely In July Or December

The European Central Bank at today’s meeting moved mostly in line with market expectations.

Analysts at Danske Bank point out the ECB delivered according to their expectations by announcing an end date to the APP, formally ending the PEPP, removing the ‘or lower’ from the forward rate guidance, and extending the time between the last bond purchase and the first-rate. They see a rate hike in December.

Key Quotes:
“Going forward, the ECB will stay data dependent, with optionality and flexibility in its monetary policy calibration, as all meetings will be ‘live’.”

“We continue to expect the ECB to raise its deposit rate in December this year, although as we also expect the ECB to end its QE buying already in July, this leaves the September meeting as a possibility as well.”

“As the ECB is tightening to slow the economy – rather than in response to rising trend growth – the EUR can be negatively affected, as it is currently. Looking ahead, the continued upward pressure on commodity prices, the war in Ukraine and the erosion of European firms’ profits remain key issues weighing on EUR/USD.”