Dovish ECB Signals 0.25% July Rate Hike: Forex trading NewsUpdates
The statement indicated that the Bank is set to hike rates by 0.25% at its July meeting and completely end its asset purchase program .and was already widely expected. In the later press conference, President Lagarde justified the size of this hike by basically saying “you always start small and test to see how it goes”, which many analysts are going to find unconvincing and overly dovish.
The statement’s content regarding the September meeting was more revealing. It indicated that meeting would see a second, larger rate hike of 0.50% if the current historically high rate of inflation persists or increases. The Bank certainly expects inflation to persist , stating also that core inflation should remain above their 2% target until the end of 2024. This statement was optimistic on the Eurozone’s “strong” economy’s ability to absorb this larger rate hike.President Lagarde promised that the Bank would ensure that inflation will be brought down to the 2% target over the medium term. Clearly, markets are not convincedA further concern is fragmentation
, as some member states, notably Italy, are showing much lower yields than the German one. This triggers fears by some analysts that the anticipated hikes in July and September are going to cause problems for monetary policy transmission by the ECB. President Lagarde promises to take action to prevent this, but it is far from clear how this will be done effectively.
This negative reaction was expected by many analysts who see the ECB as well behind the curve and heading for a tight spot which it will be unable to effectively navigate., believing that the Euro really requires a higher Man Refinancing Rate to arrive more quickly than is indicated by the ECB, to be effectively supported.
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