ECB holds rates as expected; June hike fully priced by markets.
ECB holds rates as expected; June hike fully priced by markets. Deutsche Bank flags upside inflation risk and downside growth risk.
Eurozone 1yr inflation expectations jump to 4.0%, highest since 2023. Credit conditions tightest since early 2024. Summary: The ECB kept policy rates unchanged at its latest meeting, a decision in line with market expectations, but the accompanying statement flagged an intensification of risks on both sides of its mandate Deutsche Bank characterised the risks as symmetric: upside risks to inflation and downside risks to growth, reflecting the stagflationary pressures building across the eurozone The statement conveyed a sense of calm confidence, referencing the resilience of the economy in recent quarters and well-anchored longer-term inflation expectations, but also signalled rising concern over the prolonged Middle East conflict Deutsche Bank noted the statement does not pre-commit the ECB to hiking in June, but equally does not prevent a hike at that meeting The ECB’s consumer inflation expectations survey for March showed one-year expectations jumping from 2.5% to 4.0%, their highest level since 2023, pointing to a meaningful deterioration in the inflation outlook at the household level The ECB’s Bank Lending Survey showed a clear deterioration in credit conditions, which are now at their tightest since early 2024, signalling that the existing rate environment is already weighing on lending activity and growth Markets have moved to fully price in an ECB rate hike by the June meeting, with bond yields rising and eurozone equity markets weakening in response Deutsche Bank Research described the backdrop as difficult, with inflation fears driving the repricing across asset classes The European Central Bank held its policy rates unchanged at its latest meeting, but the decision masked a more uncomfortable picture beneath the surface.
According to Deutsche Bank Research, the ECB’s own surveys are now flashing warning signs on both…