The ECB has been in rate-hiking mode, having pushed up the repo rate up .25 basis points to 3.25 percent at its early October meeting. Forex traders and analysts widely expect the ECB to pull the trigger on another rate hike at its Dec. 7 meeting, bringing the rate to 3.50 percent by year-end — a scenario many market watchers say is already priced into the market.
“The ECB is raising interest rates back into a neutral range, where policy is neither adding to nor holding back growth,” Guest explains. The following meeting is Jan. 11. Along with other market watchers, Guest agrees the ECB will hike again Dec. 7. Beyond that, however, expectations are less certain.
“We expect one more quarter-point hike from the ECB by May of next year,” he explains. “There will likely be a slight pause at the start of 2007 in order to assess the impact of the VAT hike.”
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