Traders Push Back ECB Hike Bets, Heeding Lagarde’s Message
(Bloomberg) -- Traders have pushed back bets on the first European Central Bank rate hike to 2023, a sign they’re heeding policy makers’ message of patience.
Money markets now expect the central bank to raise its deposit rate by 10 basis points only in February 2023, compared with wagers December 2022 on Wednesday. Then, the policy rate could take five years to rise to 0%, swaps contracts suggest.
“A rate hike in 2022 seems to be too much,” said Jens Peter Sorensen, chief analyst at Danske Bank A/S, who sees the current bout of inflation as transitory and expects the ECB to tighten borrowing costs after 2023. He also cites the fragile European economic recovery and rising Covid cases as factors underscoring the patience.
Traders scaled down bets after ECB President Christine Lagarde and Executive Board member Isabel Schnabel both cast doubt on tightening prospects next year. ECB’s Lagarde said on Monday that conditions for a rate increase next year were very unlikely to be met, a comment echoed by Schnabel and Luis de Guindos on Wednesday.
It’s a sharp turnaround for traders who were pricing as much as 20 basis points of tightening for 2022 last week, amid global inflationary fears after U.S. prices in October rose at the fastest pace in three decades.
Still, prices rose 4.1% in October, the fastest pace in 13 years and more than double the ECB’s target.
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