Both we and the market are now discounting 100bp of ECB rate hikes by the end of 2023. And given the sequencing set out by Christine Lagarde, it seems likely that net asset purchases will end in Q3 this year at the latest. There are a number of reasons why the region is better placed to handle tighter monetary policy than it was in 2011, including lower debt servicing costs and the longer average maturity of government bonds. But peripheral spreads have widened markedly in the past few days, which will test the ECB’s tolerance for tighter financing conditions. The market reaction strengthens the case for the Bank to remain open to re-starting bond purchases even after it has started raising policy rates.
Drop-In (10 February, 11:30 GMT): The Riksbank’s dovish stance looks increasingly untenable in a world of policy tightening, but how far will it go to embrace the hawkishness of its peers? David Oxley and Jonas Goltermann will be online to discuss the Swedish monetary policy outlook following the latest statement this Thursday. Registration details.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services