ECB preview: normalisation starts

We expect the ECB to announce an end to net purchases at its June meeting and to quasi pre-announce a rate hike for July. While the economy clearly lost momentum since the beginning of the year , latest data show that it has not weakened enough to overwrite the concerns regarding the i nflation outlook . Although some Governing Council members have come out with demands for a n aggressive tightening to, in their view, get again ahead of the curve, we expect a re-confirmation of the rate path laid out by President Lagarde , which is characterized by “gradualism” . The interest rate forward guidance will consequently also have to be changed signaling now , as President Lagarde put it , a “progressive further normalization of interest rates towards the neutral rate” . It will be interesting to see whether President Lagarde will provide any indication where the neutral rate for the euro area may be.