Barclays Capital economists have revised their projections for the European Central Bank (ECB) base rate and now expect a 25 basis point rate increase in July, taking the policy rate to 1.50%. The ECB also said that another 25 basis point rate hike is likely in December.
They further expect 25 basis point increases in March and June 2012, taking the rate to 2.25% by mid-year 2012.
Interest rate hikes could impact collateral performance across European RMBS. However, the ECB signaled that it will extend its fixed rate and full allotment liquidity regime into the third quarter. This, market analysts said, would offer continued support to bank-retained securitizations in the coming months.