Societe Generale strategists expect the European Central Bank (ECB) to keep rates unchanged today despite a hawkish bias after past late tightening. It warns that unresolved Gulf tensions in six weeks could make a future rate hike more contentious as growth risks rise.

Oil-driven inflation risks versus weak growth

“Occasions like yesterday are rare in the history of the ECB when the bond market sells off the day before the council meeting, as if to urge the late Duisenberg, Trichet, Draghi or Lagarde to raise rates.”

“The breakdown in prices and melt up in yields in the last 24h is entirely on account of oil prices of course (supply/resumption of US military raids?) and not the product of a squeeze in demand or fears of the economy overheating.”

“Traumatised by the late tightening in 2022, the ECB is leaning towards raising rates but won’t do so today.”

“The merits of hiking today may be on the table but the vote will be for status quo.”

“In six weeks, without resolution in the Gulf, a rate hike will be more contentious and could coincide with further deterioration of the economic landscape, destruction in supply and in demand.”

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