Home > Dynamic > ECB insists there wi...

ECB insists there will be no rate hike in 2022, financial market analysts skeptical

2022-02-08

1175

Financial markets have their say on when the ECB will start raising interest rates.

While ECB officials insist a rate hike is unlikely in 2022, money markets are forecasting a 10 basis point rise in deposit rates to -0.4% as early as September, before the end of next year to move out of negative territory for the first time since 2014.

Here are some reasons why investors disagree with central bank officials.

Inflation Outlook

Euro zone inflation figures for the month following the ECB's December meeting were stronger than expected. Rather than slowing down, price momentum accelerated further, hitting a record high of 5%.

The recent surge in energy costs means inflation is likely to remain elevated for longer, but ECB officials expect it to fall this year. The market doesn't believe it.

"It's hard to see the market regaining confidence that inflation is temporary in the short term, as the data in the coming months will still be grim," said Sandra Holdsworth, head of rates at Aegon Asset Management. "Markets will be nervous ahead of the ECB's March meeting on fears that the ECB will change its policy and may even speed up the pace of tapering like the Fed."

Economists are currently supporting the ECB's stance, although in recent weeks some, including JPMorgan and UBS, have expected the central bank to raise rates sooner.

quiet dove

Some ECB Governing Council members appear to have shifted their monetary policy rhetoric amid frequent higher-than-expected inflation. Investors took notice.

Ireland's central bank governor Gabriel Makhlouf and Finland's central bank chief Olli Rehn both recently said the ECB should not be complacent and would respond if necessary. Both are seen as more dovish. Francois Villeroy de Galhau, governor of the Bank of France, cautioned against raising the prospect of prices rising below a 2 percent target in 2023 and 2024. He is an influential centrist.

Many officials oppose extending the reinvestment period of maturing bonds to the end of 2024 in response to the outbreak, according to people familiar with the matter. In the end the plan was approved only because it was included in the stimulus withdrawal package.

"Not only hawks, but many doves have also signaled a willingness to change course in recent days and weeks," Commerzbank economist Michael Schubert wrote in a recent note. "If this trend continues, it will be a signal for the ECB to exit expansionary policy sooner than expected."

peer pressure

The European Central Bank believes that the economic recovery in the euro zone lags behind other advanced economies. The European Central Bank has already lagged behind the Federal Reserve and the Bank of England, among others, in withdrawing stimulus.

Kamakshya Trivedi, co-head of global foreign exchange and emerging markets macro strategy at Goldman Sachs, said: "Once the market re-prices the Fed curve, it will tend to do the same elsewhere, which is the nature of the market."

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

CM Trade

As a world leading financial trading platform, CMtrade Provides comprehensive one-stop trading services and opportunities for traders.

[Products]

The platform provides over 32 kinds of popular financial products such as forex, precious metals, crude oil, indices, cryptocurrencies and more.

[System]

2 top trading systems CM Trade MT4 / CM Trade APP, powerful and easy to operate

[Service]

Comprehensive market news, professional market analysis, 7*24 hours online customer service

[Advantage]

Low cost, high leverage, flexible one-stop all day two-way trading.

[Authority]

Licensed and strictly regulated by authorities. Traders deposits are independently kept by the bank. Fast deposit and withdrawal. Fair, efficient and transparent trading environment.

Free Access
Daily Trading Strategy Download Now

CM Trade Mobile Application

Economics Calendar

ECB insists there will be no rate hike in 2022, financial market analysts skeptical

Access to global trading markets anytime and anywhere