Morgan Stanley: The European Central Bank is expected to raise interest rates by 50 basis points, which will limit the amount of reinvestment

The ECB will raise rates by 50 basis points at its December meeting and has signaled further hikes in early 2023. Another 25 basis points of interest rate hikes are expected in February and March next year, taking the deposit rate to 2.50 percent eventually.

The European Central Bank is expected to announce an adjustment to the reinvestment policy of its asset purchase program, which will begin to reduce the amount of reinvestment in March 2023. The change in plan would limit the amount of reinvestment, but the ECB would not consider selling bonds voluntarily.

The ECB may choose to set a monthly nominal reinvestment cap, or to reduce the reinvestment quota by a certain percentage each month.