It may not be the end, but it is certainly the beginning of the end of the European Central Bank's hiking cycle. The governing council decided to raise its official deposit rate by a modest 25 basis points to 3.25% on Thursday. In a further dovish move, forward guidance was left suitably vague, simply saying that borrowing costs will be "sufficiently restrictive." Policymakers are smart to relax their tightening stance.
This reduction in scale, following three half-point hikes this year, brings the ECB into line with the Federal Reserve and the Bank of England. The Fed also lifted official rates by 25 basis points on Wednesday, and the BOE is expected to follow suit on May 11. These could prove to be their last upward moves in this cycle, and while the ECB probably isn't done yet, it clearly didn't feel sufficiently confident to continue blazing away with a bigger move today when the Fed is probably pausing for the foreseeable future. "We are not pausing, that is very clear," ECB President Christine Lagarde said in Thursday's news conference. "We know that we have more ground to cover."