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• The ECB delivered the second rate hike of the current tightening cycle, raising its policy rate by 25bps to 1.50%. We expect the policy rate to reach 1.75% by the end of the year.
• The ECB has suspended the collateral requirement rules for Portuguese government bonds after they have been downgraded to below investment status by Moody’s.• ELA facility could be used for liquidity provision to Greek banks if government bonds fall to default status.• Divergent growth pattern complicates monetary policy, as higher rates put a further burden on public and private finances in the periphery.
• Risks to inflation remain on the upside, implying that a more aggressive tightening cycle might materialize.