[Asia Economy Reporter Hwang Yoon-joo] Samsung Securities predicted that considering the increasing likelihood of the Eurozone economy entering a recession in the fourth quarter, the European Central Bank (ECB) will find it difficult to maintain the current rapid tightening stance.
Yang Ji-sung, a researcher at Samsung Securities, said, "Discussions on quantitative tightening (QT) will also take place in December," and judged that "the possibility of maintaining the 75bp (1bp=0.01 percentage point) rate hike stance is not high."
On the 27th (local time), the ECB implemented a 'giant step' by raising the benchmark interest rate by 75bp from the current 1.25% to 2.00% at its monthly monetary policy meeting. This was the second giant step following last month. In a statement, the ECB indicated that it might raise rates further to reduce the Eurozone (19 countries using the euro) inflation rate, which reached 9.9% last month, down to the ECB's target level of around 2.00%.
However, Researcher Yang evaluated the October ECB monetary policy meeting statement and press conference as dovish. First, contrary to market expectations, the meeting did not address balance sheet reduction (QT), and second, changes in the monetary policy statement wording and the content of the press conference left room for dovish interpretation.
Yang pointed out, "Recently, key ECB officials have expressed the need to discuss QT, but the statement did not explicitly mention balance sheet reduction," adding, "President Lagarde stated in the press conference that the principles and direction of QT will be discussed at the December meeting."
The revision of the monetary policy statement wording related to rate hikes is also noteworthy. Yang analyzed, "In September, it was specified that rates would be raised 'over the next several meetings,' but this expression was removed this time."
He further explained, "President Lagarde said in the press conference that since a significant level of tightening has been implemented rapidly, it is necessary to reassess the effects of monetary policy that will appear with a time lag," meaning "the pace of future rate hikes could be adjusted."
Yang expects the ECB's policy dilemmas to increase going forward. He stated, "Inflationary pressures are also expected to peak in January due to falling commodity prices and weakening demand," and "Samsung Securities forecasts that the ECB policy rate will be raised by 50bp in December, followed by two to three 25bp hikes before being held steady."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
