EUR Watch – The ECB will soon reveal their true inflation vs growth preferences
The ECB is likely going to hike tomorrow and even after the repricing this morning, we still see risk/reward favoring a bet on a hike. With the inflation forecast likely being hawked up (as per sources in Reuters), we see a very high probability that the ECB will react to the hawkish adjustment of staff projections with a hike and continued hawkish messaging.
If the ECB raises the inflation profile to >3% territory in Q4-2023 and Q4-2024, that would constitute a >0.3%-points increase in the profile, which will most certainly have to be followed up by policy action.
This will also be a confirmation that the ECB could not care less about growth as long as inflation is not contained.
Chart 1: ECB forecast to be hawked up?