© Reuters. FILE PHOTO: A symphony of light illuminates the southern facade of the European Central Bank (ECB) headquarters in Frankfurt, Germany, December 30, 2021. REUTERS/Wolfgang Rattay/
By Swathi Nair
BENGALURU (Reuters) – The European Central Bank will raise deposit rates above zero for the first time in a decade in September, according to most economists polled by Reuters who expect it. will be at least 50 basis points higher than previously predicted by the end of year.
While economists say eurozone inflation has yet to peak, the ECB has given itself some room to catch up with its global peers, who are rapidly raising interest rates. neutral, by planning a new tool to limit divergence in the bloc’s bond yields.
The June 15-22 poll showed all but two of the 55 economists expected the ECB to grow by a quarter on July 21 to -0.25%. Two expected it to increase by 50 basis points, compared with none in the previous poll.
A majority of 91% or 50 of 55 economists expect the Bank to raise policy rates by 50 basis points in September, bringing deposit rates out of negative territory to 0.25%.
Forecasters last month had expected the ECB to wait until the fourth quarter to bring the deposit rate, currently -0.50%, to positive levels.
About 60% or 33 of the 55 economists saw another 25 basis point increase in October, and about 85% or 47 of the 55 economists expected a similar increase in December, bringing the deposit interest rate to 0.75% at the end of the year.
But some forecasts suggest the rate will peak at 1.25% by the end of December, underscoring the possibility of bigger moves.
Paul Hollingsworth of BNP Paribas (OTC:) said: “The ECB is engaged in a neutral bias to stave off an increase in potential inflationary pressures… Risks to the near-term outlook tilt in the right direction. growing faster”.
“Not only because of the possible surprises from inflation, but also because the presence of a supportive base alleviates concerns to some extent about the possibility of spillovers to the periphery. “
The bank’s neutral deposit ratio is between 1.00% and 1.75%, the poll of a smaller sample showed, and it is expected to be raised in that range next year.
The poll predicted 25 basis points increase in Q1, 2 and 3 years later, pushing deposit rates to 1.50%, in the final range of 1.25%-1.50% .
Rabobank’s Bas van Geffen said: “We expect the weakness in growth to become more apparent in the coming months, which should prompt the ECB to be cautious… A modest recession is now projected. our basic newsletter,” said Rabobank’s Bas van Geffen.
“The economic downturn will give the ECB a pause in the bull cycle, but if inflation or expectations show no signs of abating, the ECB could be forced to continue despite that downturn.”
Economists who answered one more question said a recession was one-third more likely within a year, slightly higher than in the previous poll. Only two respondents had two consecutive quarters of declines in their forecasts, the technical definition of a recession.
The economy is expected to grow by an average of 2.6% in 2022 and then 1.8% next year, the median forecast of about 70 economists showed.
More than 70% or 25 of the 34 economists said in advance of an additional question that eurozone inflation had yet to peak. Twenty said it will happen in the third quarter, four said this quarter and one said in the fourth quarter.
Inflation, which hit a record high of 8.1% last month, is expected to average 8.3% next quarter – more than four times the ECB’s 2.0% target. After that, it is seen to gradually decrease, but will not be near the target until the end of 2023.
(For other stories from the Reuters global economic poll 🙂