\u201cThe ECB has raised rates to 2.25%. A widely anticipated decision, with few surprises and a stagflationary outlook\u2026 The debate now centres on the ECB\u2019s next moves. Our economists believe this is the last hike of 2026, whilst the markets continue to price in a further hike in September and a third in early 2027\u201d.<\/p>\n
By Antonella Manganelli<\/p>\n
By Antonella Manganelli, CEO of Payden & Rygel in Europe | The European Central Bank has raised its deposit rate to 2.25%, a decision that the markets had fully anticipated and priced in over the past few weeks. The reaction has been muted: sovereign bond yields saw a modest rise, limited in part by the fall prior to the announcement. In the foreign exchange market, the euro is approaching the 1.15 level against the dollar, a technically significant threshold, suggesting that the market had already priced in a potentially more aggressive stance from Frankfurt.<\/p>\n
President Lagarde\u2019s statement offered little in the way of new information. No commitment to further hikes, a reaffirmed data-dependent approach, and uncertainty in the Middle East as the dominant variable.<\/p>\n
The updated forecasts point to a stagflationary scenario, with inflation revised upwards to 3.0%, core inflation at 2.5%, and growth slightly revised downwards. The European outlook remains challenging with prices still high and activity slowing.<\/p>\n
The debate now centres on the ECB\u2019s next moves. Our economists believe this is the last hike of 2026, whilst markets continue to price in a further hike in September and a third in early 2027. Much will depend on the evolution of energy prices. As long as they remain high without reaching levels that undermine growth and trigger a recession, further monetary tightening will remain a plausible scenario. It cannot be ruled out, however, that a de-escalation in the Middle East could lead to a sharp fall in energy prices over the summer, which would allow rates to stabilise at 2.25%. We believe, however, that it is unlikely that markets will price in this scenario before concrete signs of a resolution to the conflict emerge; until then, they will probably continue to price in at least two further rate rises.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cThe ECB has raised rates to 2.25%. A widely anticipated decision, with few surprises and a stagflationary outlook\u2026…\n","protected":false},"author":2,"featured_media":53750,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2388],"tags":[1858],"class_list":["post-70733","post","type-post","status-publish","format-standard","has-post-thumbnail","category-european-central-bank","tag-european-central-bank"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/posts\/70733","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/comments?post=70733"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/posts\/70733\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/media\/53750"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/media?parent=70733"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/categories?post=70733"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/tags?post=70733"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}