December 15, 2022: -The European Central Bank will keep hiking benchmark prices, albeit slower, with inflation anticipated to be close to a peak. The Frankfurt institution wants to reduce its vast holdings of administration bonds.
“We expect the ECB to increase its policy prices by 50 bp at the December meeting,” said Michael Schumacher, an ECB watcher with Natixis.
“We anticipated an announcement of Quantitative Tightening next year, though the ECB is unlikely to gain a specific start date at this point.”
Quantitative tightening, or QT, could see the ECB shrinking its gigantic bond portfolio, which cities on its balance sheet after years of government debt purchases and monetary stimulus.
“The governor’s meeting should be an opportunity to talk the reduction of the balance sheet,” Franck Dixmier, a global CIO for fixed income at Allianz Global Investors, said.
“We expect the ECB to take a gradual approach avoiding market volatility shocks, as the Governor of the Banque de France, Francois Villeroy de Galhau, stressed.”
One more topic for the ECB’s Governing Council, concluding on Thursday with a press conference, will be inflation and possible peak inflation.
“While Inflation peaked in October, we experience core inflation lingering above 5% until mid-2023 before trending lower,” said Anatoli Annenkov at Societe Generale in the latest research note.
And much focus will be on the staff projections despite recent criticism regarding the reliability of the forecasting models used. It is widely anticipated that inflation anticipation from the ECB will be revised upward for the year 2023, and GDP is estimated should be lowered for the coming year.
“It will be fascinating to see whether the ECB will have a technical slump in its baseline forecast,” Annenkov added.