The European Central Bank faces another tricky decision at its monetary policy meeting on Thursday. It's too early to call an end to the rate-hiking cycle as inflation remains way above target. But policymakers would be smart to slow the pace of tightening, giving themselves time to assess the impact of the substantial stimulus withdrawal they've implemented thus far.
A quarter-point increase in the official deposit rate, taking it to 3.25%, affords the most optionality, and has the happy coincidence of aligning with expectations in the futures market. The ECB really does need to remain flexible as growth in the euro area remains lackluster, coming in at just 0.1% in the first quarter. Slowing the pace of rate hikes from the half-point increments that have become the norm doesn't necessarily have to mean a lower ultimate peak for borrowing costs - it could just take longer to get there.
