Some sage advice from ECBs deGuindos:

  • Don't believe anybody who names a terminal rate
  • Markets can be wrong about terminal rates

Who not to believe:

The September ECB euro short-term rate contract projects a terminal rate of around 3.62%.

Last week, the European Central Bank (ECB) slowed its interest rate increases, raising its main deposit rate by 25 basis points to 3.25%. However, the bank signaled further tightening to combat inflation. Despite a barely growing euro zone economy and banks reducing credit, high inflation rates persist. ECB President Christine Lagarde emphasized that more ground must be covered, and interest rates are not yet "sufficiently restrictive." Some policymakers anticipate two or three more hikes. The ECB's decision followed the U.S. Federal Reserve's similar rate increase, but Lagarde dismissed the notion of being dependent on the Fed's actions. Markets now expect the ECB's peak rate to be around 3.65%.