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ECB Refi Rate 4.5% (consensus 4.5%) in Dec-23

• The ECB’s decision to maintain key interest rates unchanged is influenced by projections of gradually declining inflation and sustained domestic price pressures, particularly from rising labour costs.
• Effective transmission of past rate increases and a cautious approach to economic recovery underpin the current monetary policy stance, with a focus on maintaining rates at levels that contribute to achieving the 2% inflation target.
• Future policy decisions will remain data-dependent, emphasizing the assessment of inflation outlook and economic growth alongside strategic adjustments in asset purchase programs to ensure effective monetary policy transmission.

Rates: The Old Lady is Not for Turning

• Most central banks held their rates in December, including the BoE. The MPC pushed back against dovish pricing with its forecasts and interpretation of the news.
• It also pointed to how the UK’s fundamentals are worse than in the US and Euro area, with excessive wages and underlying price inflation preventing a sustainable return to target.
• Three MPC members still favour a rate hike, and most of the rest have a hawkish bias. The BoE looks nowhere near a cut, and nor should it be. We see it on hold through 2024.

By Philip Rush