ECB increases rates: the job on inflation is not done yet, but expect a softer path

- The European Central Bank (ECB) raised its key policy interest rates by half a
percentage point, lifting the deposit rate to 3.0%. It did not commit to future rate hikes,
stressing that decisions will be made meeting by meeting and based on the data.

- Macro: The ECB lifted its 2023 GDP forecast while reducing its headline inflation
projections. However, it also lifted its core inflation forecast for 2023.

- Banking sector stress: The ECB iterated its confidence in the euro area banking sector,
which shows strong capital and liquidity positions. It did not announce new liquidity schemes
but said it stood ready to act with its extensive policy toolkit.
- Investment implications: After a period where rate hikes have only had a muted impact
on the economy, recent events tell us that a speed limit has been reached. We now wait for next week’s FOMC decision but, overall, steepening is coming. Agility is the name of the game, as dispersion will generate active opportunities.