Yesterday's ECB conference and Christine Lagarde's stance surprised the markets, which did not expect that the ECB, so far conservative in its actions and essentially dovish compared to the Fed, would be ready to make radical decisions to tame inflation. In addition, some ECB members yesterday voted for 75 bp rate hike versus 50 bp market expectations, but the bank ultimately opted for 50bp.
New comments today came from Bundesbank and ECB members:
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- The Bundesbank significantly raised its inflation forecast for Germany for 2023 to 7.2% from 4.5%, for 2024 to 4.1% from 2.6%;
- Inflation in 2025 at 2.8% and GDP growth in 2024 at 1.7% (vs. 1.8% previous forecast) and 1.4% in 2025;
- The German economy will contract by 0.5% in 2023, against a June forecast of 2.4% growth;
- Germany expects a recession in 2023, but the slowdown will not be severe;
- Gas shortages are not expected, but household income and consumption are expected to decline by mid-2023.
ECB Villeroy
- Market expectations for interest rates fell too far in November.
- The ECB is likely to increase the pace of QT from July and is ready to raise rates by as much as necessary.
- The eurozone economy will avoid a hard landing. Villeroy stressed the determination to bring inflation to around 2% by the end of 2024/end of 2025;
ECB Mueller
- Rates are likely to rise more than markets expect and must be raised further.
ECB Holzmann
- ECB will go deep into restrictive territory if necessary.
ECB Rehn
- Interest rates have yet to rise significantly. Rises of 50 basis points are likely in February and March.
- The bank has plenty of time to raise, Rehn is not convinced that markets have priced the final rate well.
Goldman Sachs
- The ECB will raise rates by 50 bps in February and March, Goldman sees a chance for 25 bps in May. According to the bank's analysts, the final rate will be 3.25% in May
Source: xStation5
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