Central Banks Continue to Tighten Policy, But Dark Clouds Loom

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Eurozone Market Update

As expected, the European Central Bank (ECB) left policy rates unchanged in June and announced it would end purchases under its asset purchasing programme as of 1st July. Later, the bank held an emergency meeting to discuss concerns over Eurozone fragmentation. With regard to rates, the ECB indicated it would begin hiking by 25 basis points (bps) at its July meeting. There was a hawkish surprise in the language around the September meeting, however, implying that a more significant move of 50 bps was their baseline before reverting to a “gradual but sustained” path for normalisation. Currently, as measured by overnight index swaps, the implied interest rate in the Eurozone will be non-negative by Q3 and at 1.59% by year-end.

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