Inflation is now a major challenge - ECB announces rate hikes for July and September

In Short

End of QE by July and a 25 bps rate hike in July announced: As expected, the GC announced to terminate QE by July 1. Surprisingly it announced a 25 bps rate hike in July and another rate hike in September. Beyond September, the GC looks for “ a gradual but sustained path of further increases in interest rates”.


  • At today’s meeting the Governing Council (GC) decided to end QE by July 1. It is on course to raise the policy rate by 25 bps in July and by at least another 25 bps in September. But if the inflation outlook persists or deteriorates a larger rate increase will come in September, by likely 50 bps in our view. 
  • The decision was taken unanimously as the new projections foresee headline as well as underlying inflation above target throughout the end of ECB’s forecast horizon in 2024, while the economy should continue to grow.
  • Beyond September, a “gradual but sustained path of further increases in interest rates will be appropriate” according to the statement. However, the range of the neutral rate and hence the end-range for normalisation has not been discussed today.
  • Fragmentation risks took a backseat at today’s meeting. President Lagarde merely reiterated the flexibility of PEPP reinvestment and that the ECB would deploy a new tool if needed. 
  • Given upside risks to inflation, todays hawkish shift of the GC poses upside risks to our forecasts of a cumulated 100bps rate increase by year-end.

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Market Commentary I Inflation is now a “major challenge” - ECB announces rate hikes for July and September

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