ECB to Adjust Rate Hike Plans Amid Tightening Financial Conditions.
The European Central Bank is expected to announce a smaller rate hike of 25 basis points due to declining core inflation and tighter financial conditions in the region. The bank may also increase the pace of its balance sheet reduction, or quantitative tightening (QT), to prevent financial conditions from overreacting. The ECB's bank lending survey showed a significant drop in credit demand amid tighter lending criteria, adding to the case for a smaller rate hike. Inflation in the euro area rose slightly to 7% in April, but core inflation slowed to 5.6%, its first decline since last June.