The European Central Bank (ECB) has hiked its policy rate by 50bp and pre-committed to hike by another 50bp in March. The deposit rate now stands at 2.50%.

Looking ahead, the ECB is widely committed to keep rates in restrictive territory to reach its inflation target in the medium term. The overall communication by the ECB remains relatively hawkish as the policy stance remains restrictive. That said, the market seems to interpret the lack of commitment beyond the March meeting and the now ‘balanced’ risks for growth and inflation as dovish signals and yields are falling sharply.

The ECB said that the inflation picture is blurred (there are some positives with energy and supply constraints lessening and some negatives including uncertainty regarding how long inflation will persist for). At present, the market expects Euro interest rates to settle at around 3.25% by the middle of this year.