TLTRO, rate hikes: what to expect from the ECB this year ?

The ECB will stop its QE by September and start raising key rates by 25bps in December. It will raise its repo rate twice in 2023, in March and June, for a total tightening of 75bps over the next 15 months. A new round of TLTRO will be announced later this year. Less advantageous for banks, the stock of very long-term operations will fall , alongside volume of excess liquidity in the euro zone , which will remain sizeable anyway . A reduction in the ECB’s longer-term refinancing operations would not jeopardize the recovery. Banks remain in a much stronger position than after the previous crisis, and business lending needs to increase only moderately. Interest rates will continue to rise in this context of monetary tightening with a 10Y Euro swap rate that would peak at 1.3% in December 2022. Sovereign spreads, after a period of relaxation post-March announcements, could tighten by the end of the year.