The European Central Bank (ECB) will have its monetary policy next week. Analysts at Rabobank now expect a 75 basis points rate hike, but risk of 50bp remains significant.

Key Quotes: 

“The hawkish shift in the ECB’s communication has led to a sharp repricing in EUR money markets, and we have subsequently changed our near-term call for a 75bp hike next week. However, Mrs. Lagarde will stress that this is not a precursor to more jumbo hikes.”

“Inflation expectations were already a key concern at the previous ECB meeting, and with yet another inflation surprise the risk of de-anchoring is growing. The ECB has to show that it will do what is necessary to return to 2% inflation, or it risks the much costlier challenge of having to re-anchor expectations. This means the ECB cannot disappoint at next week’s meeting, lest it risks giving off the impression that growth risks do still outweigh inflation in their decision making. At current market pricing, this means that the ECB has to deliver a 75bp hike.”