<ul><li>50 bps rate hike</li><li>Reaffirming another 50 bps rate hike in the next meeting</li><li style=““ class=“text-align-justify“>Reiterate that inflation remains stubbornly high and that ECB is committed to fighting that</li><li style=““ class=“text-align-justify“>Repeat that policy path remains very much data-dependent</li></ul><p style=““ class=“text-align-justify“>If there is a checklist for the ECB policy decision and messaging today, the above four points will likely be it.</p><p style=““ class=“text-align-justify“>That points to quite a straightforward one in terms of what we are all expecting but there might be some subtle changes to look out for. Let’s get straight into it.</p><p style=““ class=“text-align-justify“>For one, another 50 bps rate hike today puts the ECB closer towards a peak in its tightening cycle. While they are likely to repeat another call for a 50 bps rate hike at the next meeting, it is unlikely to see Lagarde commit to anything beyond that – at least not in a firm manner.</p><p style=““ class=“text-align-justify“>As such, expect the ECB to only reaffirm a 50 bps rate hike for March. As for what comes after, that will depend on Lagarde and we are likely to just hear something more vague that offers up some flexibility.</p><p style=““ class=“text-align-justify“>In terms of the statement, we might get a change in wording on this passage potentially:</p><p style=““ class=“text-align-justify“>“In particular, the Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target. Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations.“</p><p style=““ class=“text-align-justify“>The relief for the ECB in the past few months has been that we saw a less harsh winter in Europe and energy prices have come down from extremely high levels. And even so, core inflation remains high across the region and continues to pose a problem for policymakers coming into today.</p><p style=““ class=“text-align-justify“>But in any case, the fact that we got such a development has granted the ECB more flexibility to be more hawkish as the economy continues to hold up – for now at least.</p><p style=““ class=“text-align-justify“>I think even in the event that we do see a more hawkish communique from Lagarde & co. today, broader markets are likely to be able to take that all in without as much difficulty as it would have been in the past.</p><p style=““ class=“text-align-justify“>We all know that no matter what the ECB says, we are getting closer to a peak in rates – which will see it move towards more restrictive territory. And as soon as that starts showing up on economic data releases, I reckon it would not be surprising to see a quick shift from the ECB to start acting like how the BOE is right now.</p>

This article was written by Justin Low at www.forexlive.com.