10-MAR-2023

ECB POLICY ANNOUNCEMENT (THU): Given the comms at the February meeting and the subsequent lack of a walkback from officials at the Bank, the ECB is unanimously expected to hike the deposit rate by 50bps to 3.0%. As such, greater focus will be on what lies beyond the March meeting for the ECB, with the Bank likely to stress its "meeting-bymeeting" and "data-dependent" approach. In the wake of the February meeting, Reuters sources suggested that policymakers saw at least two more rate hikes with the May increase expected to either be 25bps or 50bps. Since then, Eurozone inflation slowed to 8.5% in February from 8.6%, whilst the super-core metric rose to 5.6% from 5.3%; something which is of great concern to policymakers on the Governing Council. This, allied with increasingly hawkish bets surrounding the Fed, has prompted many desks to project the ECB's terminal rate at 4% (would see 50bps March, 50bps May and then either another 50bps in June or 25bps in June and July). The statement is unlikely to be explicit in stating what markets should expect for the coming months, and as such the accompanying macro projections will be of greater interest to the marketOn which, ING suggests that lower energy prices, higher 3M Euribor rates and a stronger EUR should lead to lower inflation projections for 2024 and 2025. ING cautions that if this does not materialise, it will underscore the level of concern over core inflation on the Governing Council. This could prompt a further hawkish repricing in the market and give further ammo to the hawks on the Governing Council with Austria's Holzmann (March 6th) outlining the case for 50bps hikes at the next four meetings. From a dovish perspective, a more subdued growth outlook within the projections, could see markets move closer to a 3.5% terminal rate. On the balance sheet, no changes are expected with the current monthly decline of EUR 15bln/month in APP reinvestments set to run until June.