ECB is about to slow its pace of rate hikes and present plans on QT

As expected, the European Central Bank is going to increase its rates once again on Thursday. This would become the fourth successive hike, although in December a smaller increase is suggested to be delivered. The bank also intends to lay out its plans for liquidity decrease in the financial system.

According to market estimations, the ECB will raise interest rates by 0.5%. It’s necessary to note that the bank previously increased the rates by 0.75% at its last two meetings. A slower pace of tightening mirrors a change in monetary policy of the U.S. Federal Reserve System.

At the same time, market participants suggest that the ECB, like the Fed, would signal further rate hikes. Such an action is important for indicating the bank’s readiness to tame inflation, which would probably remain above the target of 2% until 2025.

As shown by a poll of economists conducted by Reuters, this Thursday the ECB is set to raise the rate it pays on bank deposits to 2%, and in the future they expect it to be additionally raised to 2.5% by March, and to 2.75% by early summer.

The ECB is also supposed to present its plans on quantitative tightening (QT), which implies an end to replacing maturing bonds in the bank’s 5 trillion-euro portfolio. This action, while removing liquidity from the financial system, is aimed at rising long-term borrowing costs, and it echoes the Fed’s earlier moves.