ECB Expected to Raise Interest Rates
Speakers
Oliver Crook
— Chief European Correspondent, Bloomberg
Summary
Bloomberg's Oliver Crook previews the ECB meeting, where a 25 basis point hike to 2.5% is fully priced. He highlights European energy prices and the bond market as key risks, and discusses Lagarde succession speculation.
- ECB expected to raise deposit rate by 25 basis points to 2.5%.
- ECB forecasts seen as outdated due to Middle East conflict and energy moves.
- European gas storage is very low, gas prices are high, and oil is above $100.
- Rising global and European bond yields are tightening credit conditions as the ECB hikes.
- Rates above 2.5% would enter restrictive territory and risk slowing the economy.
- December and February ECB decisions are seen as more difficult.
- Speculation continues over Christine Lagarde possibly leaving the ECB early.
Ideas
Low gas storage, high gas/oil prices.
European energy prices remain a key stagflationary risk for the ECB: European gas storage is very low, European gas prices are very high, and oil has broken back above $100, with the outlook still dependent on how cold winter gets.
ECB hikes into already tighter credit conditions.
The bond market is now another protagonist for the ECB: yields have risen across Europe and globally, creating tighter credit conditions, and the ECB is hiking into that scenario, making further tightening more dangerous.
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