On Thursday, the European Central Bank (ECB) raised its key interest rates by 25 basis points. Analysts at Danske Bank were expecting a 50 basis points hike. They pointed out that the central bank is not done hiking, and President Lagarde clearly stated that its data-dependent approach warranted further hikes based on the current outlook.

Key quotes: 

“The inflation assessment was broadly unchanged with ‘inflation outlook continues to be too high for too long’. Against this background, we assess that the bank lending survey has ‘spooked’ the GC members to slow the pace to 25bp.”

“The ECB is not done hiking and President Lagarde clearly said that its data dependent approach warranted further hikes at the current outlook. We add a 25bp hike in September as well to our rate call, thereby keeping our 4% peak policy.”

“Lagarde repeated several times that it is a journey and not the destination and hence an open mind to the rate decisions is kept. With our current inflation and growth assessment we warrant that this tightening cycle will be slightly longer but still end around the 4% level.”