According to Jan von Gerich, Chief Analyst at Nordea, the European Central Bank (ECB) is likely to start its rate hiking cycle with a 25bp move on Thursday despite clear signs of weakening growth momentum.

Focus will be on the anti-fragmentation tool

“With inflation much too high and price pressures broadening, the ECB has no room to soften its rhetoric at Thursday’s meeting – despite clearly weakening economic data. Even though some hawks have wanted to leave the door open for a bigger increase, and recent media stories have suggested the ECB will discuss also a bigger move this week, we think the ECB still follow its earlier guidance and hike rates by 25bp on Thursday.”

“On the anti-fragmentation tool, dubbed Transmission Protection Mechanism, we think the details will not convince markets. Even if they do, the ECB is unlikely to be willing to use the full firepower of the instrument, unless absolutely necessary. Many Governing Council members have emphasised the backstop nature of the tool, which will be used only if necessary.”