Economist at UOB Group Lee Sue Ann assesses the latest ECB event on February 2.

Key Takeaways

“The European Central Bank (ECB), at its first meeting of the year, lifted interest rates by 50bps. It also gave more details on how it intends to shrink its EUR5tn bond portfolio, reaffirming a monthly cap of EUR15bn between Mar and Jun on maturing debt that is allowed to expire.”

“The latest decision follows a slew of encouraging economic data, showing a further retreat in inflation and receding chances of a recession in the 20member region. These factors give the ECB room to remain hawkish. But just how far and how fast the ECB will go from there, is still unclear.”

“In line with our current forecasts, the ECB is expected to hike by another 50bps at the next meeting on 16 Mar. This will bring the refinancing rate to 3.50% and the deposit rate to 3.00% by 1Q23. The Mar meeting will also feature a new set of economic forecasts that should heavily influence the ECB’s decision going forward, and we will update our ECB forecasts accordingly then.”