European Central Bank: Credibility costs 25bps – TD Securities

TD Securities’ Global Strategy Team expects the ECB to raise the deposit rate to 2.25% in response to persistently high energy prices. They argue this move is aimed at reinforcing the ECB’s inflation-fighting credibility and anchoring expectations, while policymakers maintain a data-dependent, meeting-by-meeting stance and preserve flexibility for future decisions based on updated projections.

ECB seen hiking to 2.25%

"We expect the ECB to raise its deposit rate to 2.25% amid persistently high energy prices."

"While this hike aims to reinforce the credibility of the ECB's commitment to its inflation target and manage inflation expectations, the ECB is likely to continue to emphasise a data-dependent, meeting-by-meeting approach, with recent messaging shifting towards consensus for action but maintaining flexibility for future decisions based on updated projections."

"Euro area Q1 GDP was revised down to -0.2% q/q (from 0.1% preliminary release). The biggest culprit was the Irish GDP revision from the preliminary figure of -2.0% q/q to a record drop of -12.1% q/q. However, this was driven largely by the volatile multinational sector, which is likely to be reversed in the next quarter."

"As a result, this negative euro area GDP revision will likely be looked through by the ECB at their meeting next week as it doesn't accurately represent fundamentals in the region."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)