ECB hikes rates as expected, but pauses rate hike cycle

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The European Central Bank (ECB) decided to raise three key interest rates by 25 basis points, in line with our expectations. The central bank also decided to set the minimum rate of return on reserves at 0%.

The ECB lacked forward guidance on what it might do next, but it revised its language to suggest a shift from a clear tightening bias to a completely neutral stance.

Like the ECB, we are “open to an interest rate decision at the September and subsequent meetings”; however, for now we maintain our view of a pause in the current tightening cycle.