Investment - Articles - Hawkish rate rise still leaves door open to rate hikes

 Sandra Holdsworth, Head of Rates at Aegon Asset Management, said: “In their final monetary policy meeting of the year, the ECB raised rates by 0.5%, taking the deposit rate to 2.0%. Over the year they have raised the deposit rate 2.5% in total in an attempt to control inflation and the ECB also signaled that further increases are on their way in 2023. They also released the latest staff forecasts. Inflation forecasts have been revised up and show a profile of falling headline inflation rates in 2023, but it takes until 2025 before expected inflation reaches close to 2.0%.

 “The ECB also announced the start of QT. Bond buying finished in June 2022 and the reversal of this policy starts in Q2 of 2023 at an initial pace of a reduction to the balance sheet of Euro15bn per month. This is consistent with the tightening policy stance. The ECB left the pace of reduction open to revision but the implication would be that it will increase.
 
 “In summary, a hawkish statement from the ECB – they continue to be concerned over inflation and in particular core inflation in 2023, which is expected to average over 4.0%, and the door remains open to further increases in interest rates and an increase to the size of the balance sheet reduction (QT).”