28.10.2022 -
Ausgewählte Statements"Wir haben unsere Zinserwartungen nach oben korrigiert und rechnen mit weiteren +50 Basispunkten im Dezember (von zuvor +25 Basispunkten) und +25 Basispunkten im Februar 2023 (unverändert) auf 2,25 Prozent."
"Die EZB verfolgt einen historisch schnellen Straffungszyklus inmitten einer sich rasch verschlechternden Wirtschaftslage."
"Wir gehen von einer schrittweisen Verlangsamung der Zinserhöhungen aus, da die Kerninflation bis zum Jahresende immer noch hoch sein, das Lohnwachstum bis zum Jahresende anziehen und ein ähnlicher Schritt von der Fed erwartet wird, während die bisher angekündigte fiskalpolitische Reaktion eher ziellos ist."
"Mitte März wird das Ausmaß der Rezession sehr viel klarer sein und die EZB wahrscheinlich davon abhalten, weitere Zinserhöhungen zu beschließen."
"Die Erklärung der EZB löste einen deutlichen Rückgang der Zehn-Jahres-Rendite in Deutschland aus (bisher -20 Basispunkte), was sich auch in den zehnjährigen BTP-Bund-Spreads widerspiegelt."
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Hugo Le Damany, Economist und François Cabau, Senior Eurozone Economist, AXA Investment Managers: EZB-Kommentar: No more 75bps rate hike
- ECB GC decided to raise the three key ECB interest rates by 75bps in October, bringing the depo and main refinancing rates to 1.50% and 2.00% respectively, as widely expected.
- Tone was much more balanced than in previous meetings, owing to past significant rate frontloading, deteriorating economic activity, though looking to shift to a likely (small) APP quantitative tightening, in H1 2023 in our view.
- Forward guidance evolved but remains very loose. ECB mindful of an historically quick tightening cycle amidst rapidly deteriorating economic situation.
- We have revised up our rate expectations, seeing another +50bps in December (from +25bps previously), +25bps in February (unchanged) to 2.25%, remaining below market's pricing despite today's significant rally.
ECB Governing Council (GC) decided to raise the three key ECB interest rates by 75bps in October, bringing the DFR (Deposit Facility Rate) and main refinancing rate to 1.5% and 2.00% respectively, as we and market widely expected. The GC continues to be wary about inflation being "far too high and stay above target for an extended period" too long. Risk around inflation expectation de-anchoring remains.
However, we could detect more confidence from GC in bringing back inflation to 2% target yielding a more balanced tone. GC "has made substantial progress in withdrawing monetary policy accommodation" and aims "at reducing support for demand" instead "further dampen demand" (in the September meeting). In turn, any reference to frontloading has been removed. President Lagarde also referred to the downside risk to their baseline growth outlook, and highlighted increased likelihood of an upcoming recession from Q4 (see below).
A couple of new twists in already very loose rate forward guidance. During Q&A, President Lagarde maintained that it may take several meetings for the ECB interest rates to reach an adequate level, thus confirming rate hike process likely to continue in 2023. She however refrained from updating her 2-4 meeting forward guidance that she gave in September. A couple of new twist came through though. She laid out three factors GC would focus on for future rate increases: 1) Inflation outlook, including evolution of the economy in the context of higher likelihood of a recession 2) the assessment of 200bps policy rate increase done since July, and 3) mindful of the transmission lags with which monetary policy usually work - we have in mind 6-12months, but given the historical speed of tightening done (and priced), it may come sooner than later. Opening the possibility of a rate cut, she hinted that terminal rate "may go above" the targeted neutral rate, which implies ex ante recognition of policy mistake. Presumably if this happens, ECB would be forced to cut later on, though we would not want to over-interpret this bit of the Q&A.
(Small) APP QT in H1 2023. President Lagarde reported that reduction of Asset Purchase Programme (APP) holdings were not discussed at the October meeting, but that discussion was scheduled for December, with a decision on the broad principles expected then. We think the pace is going to be slow. This is in line with our expectation of Q1 2023 APP QT announcement, kick-in in Q2 2023.
Limiting (excess) reserves arbitrage. The ECB decided to recalibrate the conditions of TLTROs to "ensure consistency with broader monetary policy normalisation process". From 23 November 2022, interest rate on all remaining TLTRO III operations will be indexed to average applicable key ECB interest rates from that date onward, removing banks' incentive to keep the funds. In that vein, the ECB has also announced three additional repayment opportunities. Furthermore, GC has decided to remunerate minimum reserves at the DFR instead of the main refinancing rate.
We add one more rate hike to our baseline bringing DFR to 2.25% though remain well below market even after today's rally. We now add one more 25bps rate hike in December to +50bps, foreseeing a more progressive slowdown in rate hikes than previously envisaged, given core inflation will still be high by year-end (4.7% y/y in Q4 22, after 4.4% y/y in Q3 22), wage growth to pick-up by year end, coherent with a similar move expected from Fed, rather untargeted fiscal policy response announced so far. We keep our +25bps rate move in February, landing the DFR at 2.25%, an appropriate level mentioned by dovish member de Cos, as well as internal ECB staff paper. By mid March, magnitude of recession (since Q4) will be much clearer likely preventing ECB from deciding on additional rate hikes, though source and implication of that recession on aggregate demand will be key. Furthermore, normalisation of monetary policy will still continue with APP partial reinvestments.
Market reaction: ECB's statement triggered a marked decline in 10yBund yield (-20bps up to now), also reflected in 10y BTP-Bund spreads close to 205bps (from 225) at the time of writing. Euro dollar stayed globally flat, closed to parity.
