Slower purchase pace in sight, but rate hikes are not

The ECB is likely to use next week’s meeting to prepare the ground for a very gradual reduction in asset purchases under the emergency PEPP. But, taking a leaf out of the Fed’s book, it will stress that this does not mean that rate hikes are getting closer, or even that policy is being tightened. Looking ahead, we think the ECB is most likely to end its PEPP purchases by next March but simultaneously step up its APP purchases. And it will leave its deposit rate unchanged until beyond 2025.