There is a case for the ECB to raise interest rates by another 75bp next week, but we suspect that it will instead slow the pace to 50bp as policy is getting closer to “neutral”. This would mean hiking the deposit rate from 1.5% to 2.0%. Further ahead, we forecast another 100bp of rate hikes next year which would bring the deposit rate to a peak of 3.0%. The Governing Council is also likely to say it will start shrinking its balance sheet in the first half of next year but at a very slow pace.
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