Close to the peak but rate cuts a long way off

There is little doubt that the ECB will raise its deposit rate by a further 25bp next week, to 3.75%. The September decision will be a much closer call but we think another 25bp then is most likely. Beyond that, the ECB will keep the deposit rate at or close to 4% until the second half of next year before beginning to loosen policy. Meanwhile, June’s huge TLTRO redemption and the end to APP reinvestments in July have both passed without incident so the more hawkish policymakers will probably make the case for faster progress in shrinking the balance sheet.