European Central Bank: Dovish hike path as energy drives inflation – ING
ING’s Carsten Brzeski expects the European Central Bank (ECB) to raise rates by 25bp next week, characterizing it as an ‘insurance’ or dovish hike. He notes Eurozone resilience, but stresses that inflation is mainly driven by energy, limiting the case for further tightening.
The European Central Bank (ECB) is expected to increase interest rates by 25 basis points next week, according to ING analyst Carsten Brzeski. Brzeski characterizes this move as a 'dovish' hike, intended as a precautionary measure. Eurozone resilience is noted, but Brzeski emphasizes that inflation is primarily driven by energy prices, reducing the need for further tightening in rates.
He warns that additional hikes could harm the Eurozone economy and risk a recession, despite neutral-rate estimates. Despite rising headline inflation and expectations of it staying above 3% year-on-year, the core and services inflation measures do not present an urgent need for concern. The surge in oil prices and the potential for another gas price shock further strengthen the case for another rate hike.
The second rate hike this year could be classified as an 'insurance rate hike', aimed at strengthening the ECB's credibility and preemptively addressing potential indirect effects from the current energy price shock. With the deposit rate at 2.5% still within the ECB's neutral range, further hikes would indicate a more restrictive monetary policy stance.
The article concludes that the ECB is likely to hike interest rates by 25bp next week, marking another 'insurance rate hike' or a dovish rate hike.
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