Europe | ECB hikes, yet remains untied

Summary

The ECB responded to the worsening inflation outlook with a 25bp rate hike, but kept all options open for the months ahead. The key message was that the shock can no longer be viewed as temporary, although there is still no clear evidence of second-round effects.

Key points

• Key points:
• The ECB raised rates by 25bp to 2.25% in a unanimous decision, arguing that the direct and indirect effect from the energy shock is spreading.
• New staff projections backed the hike, with core inflation revised up to 2.5% and growth only modestly downgraded.
• Lagarde stressed that second-round effects are not yet visible, allowing the ECB to keep a meeting-by-meeting approach without signalling another hike.
• Our baseline still points to no further hikes this year, assuming oil prices gradually retreat, but upside risks are rising as the conflict persists.

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