PIMCO: A measured adjustment of ECB policy
Konstantin Veit, Portfolio Manager at PIMCO, comments on his expectations for the ECB’s upcoming meeting on Thursday:
'At its June meeting, we believe the European Central Bank (ECB) will raise the deposit facility rate (DFR) by 25 basis points, to 2.25%. At this stage, we do not expect the ECB to hike rates in an aggressive fashion, and judge more than two hikes as less likely.
Two hikes would bring the policy rate to the upper bound of the range of its own neutral rate estimates (1.75% - 2.5%) and would primarily serve the purpose of managing expectations and preventing second-round effects. While wage growth developments do not warrant serious concerns at this stage, selling price and inflation expectations deserve closer scrutiny.
While the euro area economy has been showing some modest momentum before the war in the Middle East, we have seen a material worsening of the outlook since, mainly on the back of the increase in uncertainty and higher energy prices pushing consumption and investment down. The June staff projections will likely foresee higher inflation and lower growth compared to the March exercise.'