Hawkish turn in his latest meeting for the ECB with President Lagarde who signaled that further interest rate hikes are on the way. “These anticipatory signals” argues Gero Jung, Chief Economist of Mirabaud AM, “are also found in the post-meeting statement, according to which the members of the ECB “believe that interest rates will still have to increase significantly at a constant pace to reach levels sufficiently restrictive”.
“Furthermore, the ECB modified the forward guidance for reinvestments under the APP program (which amounts to €3.2 trillion) by announcing a Quantitative Tightening (“QT”) program starting in March 2023. In particular, the reduction of the balance sheet will amount to 15 billion euros per month on average until the end of the second quarter, with the subsequent pace to be determined throughout the year. The announcement of a QT program came as a surprise to many and is clearly a hawkish signal. As for the timing of the QT programme, it is worth noting that the ECB will start reducing its balance sheet as many Eurozone countries are expected to run large fiscal deficits in 2023, exacerbated by the current energy crisis, suggesting that the financial markets will have to absorb a lot of sovereign debt next year” concludes the expert.