Economic Data Fixed Income Date

ECB Monetary Policy ECB: Hike by 50 Bps & Shifts to 17 March 2023
Data-dependent Approach

ECB’s raise policy rates by 50 basis points to 3% with changed guidance was undertaken to account for the projected
high inflation levels, despite the strain in the global banking sector in the last two weeks. Central Bank retained its QT
framework of €15bn per month. ECB decision making in future would remain ‘data-dependent’ and concern about a
possible systemic crisis unfolding.

Growth projections : Projection were revised higher from 0.5% YoY to 1% for 2023, taking into account easing supply
conditions, easing energy prices, and firm wages from a tight labour market that was expected to support
consumption.

However, growth projections were marginally revised lower for 2024 and 2025 to account for the negative impulse
from tighter policy. There was also an explicit acknowledgement that credit was starting to slow sharply in response to
the monetary tightening that has taken place since 2022. However economic projections presented probably do not
reflect the changes in the recent landscape.

Euro Zone GDP Projections (% YoY)

Month 2023 2024 2025
Mar-22 2.80 1.60 NA
Jun-22 2.10 2.10 NA
Sep-22 0.90 1.90 NA
Dec-22 0.50 1.90 1.80
Mar-23 1.00 1.60 1.60

Inflation projections: Inflation were lowered from 6.3% YoY to 5.3% for 2023, from 3.4% to 2.9% for 2024, and from
2.3% to 2.1% for 2025, primarily taking into account the fall in energy prices.

Euro Zone Inflation Projections (% YoY)

Month 2023 2024 2025
Mar-22 1.80 1.80 NA
Jun-22 3.50 2.10 NA
Sep-22 5.50 2.30 NA
Dec-22 6.30 3.40 2.30
Mar-23 5.30 2.90 2.10

Inflation is expected to remain above the 2% threshold over the forecast horizon (2023-2025). Concerns were
expressed about core inflation pressures, which were forecasted to come in at 4.6% in 2023, 2.5% in 2024, and 2.2% in
2025. In its assessment of inflation, food inflation remained elevated at 15% and that core inflation pressures
remained strong. Underlying inflation pressures were coming from gradual pass-through of past cost increases, pent-
up demand, and rising wages.

It also stated that in determining the inflation outlook it will take in to account three broad facts: (a) Upcoming
inflation and financial market data, (b) dynamics of underlying inflation and (c) the strength of monetary policy
transmission. A key downside risk to inflation came from ‘elevated financial market tensions that could accelerate
disinflation’.
17 March 2023
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Economic Data
ECB Monetary Policy
ECB Monetary Policy

Monetary policy outlook: Further tightening could still be possible given that inflation concerns remain in place. If
contagion risks remain limited and the crisis abates, there is a possibility of a further 25bps rate increase. However, if
financial conditions deteriorate further, there would be limited scope for additional rate increases.

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Economic Data
ECB Monetary Policy