The European Central Bank (ECB) decided to raise its three key interest rates by 25bps. After a total of 450 bps rate hikes, the ECB’s main policy rates are now at a record high. 

The ECB’s new projections show inflation slowing from a current rate of 5.3% to 3.2% next year and 2.1% in 2025, making only slow progress towards the bank's 2.0% target. The growth outlook continued to sour and the ECB now sees a 2023 expansion of just 0.7% after predicting 0.9% three months ago. For 2024, it sees the economy growing by 1.0%. 

While we believe the door to future rate hikes remains open, we prefer keeping to our view of a pause in the current tightening cycle, implying terminal rates of 4.50%, 4.75% and 4.00% for main refinancing operations, the marginal lending facility and the deposit facility, respectively.