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Believe the hype
- The July meeting of the ECB’s Governing Council saw the central bank leave its key interest rates unchanged and simultaneously leave the door open to a rate hike in September.
- At the post-meeting press conference, President Lagarde continued to stress that the ECB will take a “meeting-by-meeting” approach to any rate changes and that it was not pre-committing.
- In response to whether markets have correctly priced in near term rates, Lagarde responded that “our understanding is that our reaction function is very well understood by markets”.
- Given the communications from the ECB, it seems reasonable to factor in a 25bps rate hike over the coming months if the incoming data justify this policy action.
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