European Central Bank to raise deposit rates to 3.25% by mid-year According to Reuters

By Jonathan Cable

LONDON (Reuters) – The European Central Bank will deliver a 50 basis point rate hike at each of its next two meetings, according to economists polled by Reuters, whose forecasts remain at risk. lagged behind policymakers’ guidance on how high interest rates should go.

Rate-setters have failed to convince the market of their commitment to continue raising borrowing costs to rein in inflation, as evident in a poll that showed the central bank would pause when deposit rates fall reached 3.25% in the next quarter.

The latest poll results come despite ECB President Christine Lagarde telling investors in Davos last week they should “reconsider their views”, adding weight to the comments. earlier from Dutch and Latvian policymakers.

Although the eurozone’s central bank has raised interest rates at the fastest pace in history, it has so far failed to bring inflation near its 2% target. Prices rose 9.2% in December from a year earlier, official data showed last week.

Lagarde and her Board of Directors will bring the deposit rate to 2.50% on February 2, 55 of 59 economists said in a January 13-20 poll. They are likely to continued that with another 50 basis point increase in March.

The central bank will then add 25 basis points next quarter before pausing, giving the final rate in the current cycle at 3.25%, the highest level since late 2008. During the visit polled in December, the rate was set at 2.50% at the end of March and has been seen topping out at 2.75%.

GRAPHIC: Reuters Poll – ECB Deposit Rate Outlook – https://fingfx.thomsonreuters.com/gfx/polling/movakjzjyva/Reuters%20Poll%20-%20ECB%20deposit%20rate% 20outlook.png

When asked how the risks are skewed to their end-of-term deposit rate forecasts, more than two-thirds of respondents, 23 out of 33, said it was more likely to end higher instead. because it’s lower than they’re expecting right now.

“The risk is that they will actually be as aggressive as they have claimed. Lagarde and others have said they are a long way off when we will raise rates at the 2023 meeting,” said Silke Tober at Institute for Macroeconomic Policy (IMK).

“It’s a very obvious risk but I happen to think it would be a mistake.”

The refinance rate is expected to rise 50 basis points to 3.00% next week and peak at 3.50% in March.

The US Federal Reserve, which started raising interest rates months before the ECB, is forecast to end its tightening cycle after raising 25 basis points at each of its next two policy meetings. It is expected to keep interest rates steady for at least the rest of the year, according to a recent Reuters poll.

UPGRADE GROWTH

Inflation has peaked in 20 EU countries, the poll shows, and will fall, but not reaching the ECB’s target until at least 2025. Inflation will average 6.0% this year and 2.5% next year but will be 2.0% across 2025.

So far, mild winters, falling gas prices and recent positive economic data mean some quarterly growth forecasts have been upgraded in the latest poll from the December survey. .

While a technical recession is still expected – with a decline of 0.2% last quarter and 0.3% in the current quarter – the economy is now projected to grow 0.1% next quarter. instead of going sideways. It is forecast to expand 0.3% over the next two quarters, the unchanged mean shows.

Asked one more question whether the recession was likely to be deeper or shallower than expected, all but one of the 36 economists said it was more likely to be shallower, not deeper. than.

“Not only is the risk of a major energy-driven recession markedly reduced, but the direction of leading indices, including our PMI data, signals the possibility of early growth,” said Ken Wattret at S&P. than expected”. Global (NYSE:).

Throughout the year, growth was pegged at 0.1%, a change from last month’s forecast for a 0.1% decline. 2024 is expected to grow 1.3%, unchanged from December’s prediction.

(For other stories from Reuters’ global long-term economic outlook poll: