“The ECB may continue with a restrictive monetary policy due to inflation risks”

While central banks’ interest rate decisions are in the spotlight of the markets, the tight monetary policy of the European Central Bank (ECB) is expected to continue after February.

While the US Federal Reserve (Fed) is expected to slow the rate of interest rate increases, the ECB is expected to continue its tightening monetary policy at full speed after February by not changing the interest rate. increase.

Despite the positive outlook on inflation, the bank is expected to continue its tightening monetary policy in the same manner, with upbeat sentiment towards the economy and predictions that upside risks to inflation may continue.

The Chief Economist of the ING Group, Peter Vanden Houte, in his assessment on the subject, affirmed that the economic forecasts in the Euro Zone have improved thanks to the significant decrease in natural gas prices with warm weather conditions.

‘PALOMA’S APPROACH EXPECTATION IS INCORRECT’

Expressing that the eurozone economy seems to have recovered from the recession at the moment, Houte said headline inflation may drop significantly in the coming months. Houte said it would be a mistake to think that a dovish approach could come from the ECB.

Noting that the bank will emphasize core inflation at the meeting, Houte said core inflation is still around 5 percent and companies may tend to raise prices further if the economy improves a bit.

Against this backdrop, Houte said core inflation is likely to decline much more slowly than headline inflation and still remain above 3 percent at the end of this year. Noting that the ECB may take a hawkish tone at its February meeting for these reasons, Houte said a 50 basis point rate hike could be in the offing.

Houte said ECB President Christine Lagarde could target further rate hikes in the coming months.

HAWKS LIMITED MOVEMENT

Elwin de Groot, Rabobank ECB and Euro Area Head of Macro Strategy, stated that the hawkish group still has a superior position in the ECB discussions, but they do not have unlimited leeway.

Saying that inflation prospects have improved with declining energy prices, Groot said the rhetoric of potentially strong growth has risen and this may point to long-term inflation risks.

Groot said the 50 basis point hike target was well phrased, but the bank may give fewer clues at the meeting than in December, adding that this development may increase downside risks in money markets, which were priced for an increase of 50 basis points in March.

Expressing that a 50 basis point increase seems almost certain, Groot said: “We still have an expectation that the ECB will reduce the rate of interest rate hikes to 25 basis points starting in March, but this 25 basis point increase it may be delayed due to the strong economic outlook and upward pressures on wages.” Groot noted that quantitative tightening could start as early as March. (BRITISH AUTOMOBILE CLUB)