ECB: Energy shock complicates June hike odds – Deutsche Bank
Finance ECB: Energy shock complicates June hike odds – Deutsche Bank Deutsche Bank economists expect the European Central Bank (ECB) to keep the deposit rate at 2% while markets fully price a June hike due to Europes energy exposure. They argue uncertainty over Oil prices and inflation pass-through means the ECB will likely retain hawkish optionality, emphasising a meeting-by-meeting approach as Euro inflation swaps and Bund yields hit multi-year highs. Rates on hold but hawkish optionality “For the ECB, it‘s widely expected they’ll keep their deposit rate on hold at 2%. But given Europes exposure to the energy shock, markets are fully pricing in a hike at the next meeting in June, so the question today is whether the ECB validates that view.” “Our European economists think theres still too much uncertainty about what happens to energy prices and the extent to which that propagates into inflation, so the ECB will want to gather more information before deciding in June whether to hike or not. In the meantime, they think the ECB will retain some hawkish optionality and emphasise a meeting-by-meeting approach to decisions.” “Indeed, the 1yr Euro inflation swap (+23.3bps) hit a three-year high of 3.87%, and markets are now pricing in 83bps of ECB