European Economics Preview: ECB To Announce Monetary Policy Decision

The monetary policy decision from the European Central Bank is the only major announcement due on Thursday.

The ECB is set to hold its main refinancing rate at zero percent and the deposit rate at -0.50 percent. The policy announcement is due at 7.45 am ET.

At 8.30 am ET, ECB Chief Christine Lagarde holds customary press conference.

The bank is widely expected to announce a plan for stimulus withdrawal after it signaled earlier that asset purchases would end in the third quarter, paving the way for an interest rate hike later in the year.

The central bank is forced to bring inflation down from a record high on the one side and to support the economic recovery on the other side. A rate hike intended to curb inflation will lift the borrowing costs of households which are already struggling with high cost of living.

The ECB is set to hike the refinancing rate by 100 basis points between July and the first quarter of 2023 before taking a pause to see what effect this has had so far, economists at ING said. The largest chunk of these hikes will probably be done over the summer, they added.

Markets are pricing in around 35 basis points of rate hike by the July meeting and expect the deposit rate to move out of negative territory by September.

Unless the ECB introduces a new backstop QE programme, economists at Capital Economics, said there is a growing risk of a major sell-off in bond markets during the coming tightening cycle.

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