ECB: We anticipate a cautious 10bp deposit rate hike in September - Rabobank

"So both we and the ECB are in a wait-and-see mode. Based on the Council’s growing concerns about potential negative side-effects, we still anticipate a first, cautious 10bp deposit rate hike in September," Rabobank research team argues. "However, we acknowledge that the risks to this call have grown considerably amidst the ongoing weakness in the Eurozone economy."

Key quotes

"For the ECB that means that the Council will stick to its plan and not change its storyline until this really becomes untenable. We certainly don’t think this is the case in the January meeting yet –
especially considering that the ECB’s forward guidance already offers flexibility to delay the first rate hike if this proves necessary."

"Since that meeting data hasn’t really improved, but there also isn’t much new data that suggests substantial further weakening of the economy. Additionally, substantially more dovish remarks from the US Fed –including Chairman Powell– helped calm fears of much too aggressive policy tightening by the US central bank."

"So considering the lengthy discussion in December, we believe there is currently insufficient new evidence to tweak this balance again. Therefore, we believe the ECB will not change its policy or communication at this stage, as the Council awaits more incoming information and the new staff projections available in March."