DWS: ECB hikes, maintains tightening bias
Ulrike Kastens, Senior Analyst Macro Research at DWS, reacts to yesterday's ECB meeting:
'As expected, the ECB raised the deposit rate by 25 basis points to 2.50%. However, more important than the rate hike itself is the outlook. While the economic outlook for 2026 and 2027 continues to improve, the projections for both headline and core inflation between 2027 and 2028 have also been revised upwards. As a result, risks to inflation remain tilted to the upside.
Markets have interpreted this as a signal that further rate increases may be forthcoming. During the press conference, however, ECB President Lagarde struck a more balanced tone. She repeatedly emphasised the data-dependent nature of monetary policy and highlighted how quickly commodity prices can change.
She also pointed to weaker wage growth and well-anchored longer-term inflation expectations. Given the exceptionally high level of uncertainty, the central bank is likely to maintain its tightening bias. Whether it will ultimately need to deliver further tightening will depend on incoming data.'