MNI ECB Review: September Hike Unsurprisingly Tee’d Up

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Executive Summary

• The ECB left its three key rates on hold as widely expected, including the deposit rate at 2.25%.
• The initial decision statement was particularly short, taking a page out of Fed Chair Warsh’s book, whilst maintaining optionality.
• President Lagarde’s press conference played up to market pricing, i.e. a strong likelihood of a hike at the following meeting in September after almost zero expectation of action today, whilst remaining open-ended ahead of a busy seven-week period until the next decision.
• We view Lagarde thinking the ECB’s reaction function is “well understood” by markets as implicit endorsement of the hiking profile priced in.
• There was a mildly dovish move in ECB rates over the suite of communications but it’s small compared to the hawkish build-up ahead of the meeting as energy prices continued to surge.
• There is still close to 50bp of hikes priced by year-end, leaning towards a quarterly hiking cadence with projection meetings. 
• Bloomberg sources echo near-term pricing in looking for a September hike unless the inflation outlook improves markedly, which also chimes with pre-meeting MNI source reporting.