ECB PREVIEW: DIFFICULT TRADE-OFFS INTENSIFY – ABN AMRO

Heading towards Thursday’s European Central Bank (ECB) interest rate decision, economists at ABN Amro believe that the bank will stick to its pre-commitment of a 25 bps rate hike.

KEY QUOTES

“The ECB will almost certainly raise its key policy rates by 25bp this week. The Governing Council’s communication has not given it much flexibility in this respect. The two key issues that will receive a lot of focus are the future path of rate hikes and the announcement of the details of its new anti-fragmentation tool.”

“With regards to future interest rate hikes, the current guidance does build in optionality based on the way the outlook develops.”

“The ECB has signalled that the September move would be a 50bp step ‘If the medium-term inflation outlook persists or deteriorates’. Whereas ‘based on the current assessment’ after September it anticipates ‘a gradual but sustained path of further increases in interest rates’. This implies 25bp steps, but this depends on ‘the incoming data and how it assesses inflation to develop in the medium term’.”