As we anticipated, the European Central Bank went big in its attempt
to ease inflationary pressures in the Euro Area on Thursday afternoon,
raising interest rates by an unprecedented 75 basis points.
Heading into the meeting, economists were torn down the middle as
to whether we would see a 50 or 75 basis point hike. While inflation
has continued to hit record highs, the worsening in the energy crisis
in Europe, and the growing possibility that the Euro Area economy
could be heading for a recession over the winter, perhaps provided
reason for caution. Financial markets were, however, far more
confident, and were more-or-less fully pricing in a ‘jumbo’ 75 basis
point rate increase prior to the announcement. In the end, the
decision among policymakers was unanimous, though the bank’s
communications were, in our view, rather mixed.