According to a survey, the European Central Bank will be more proactive than previously anticipated in its tightening campaign, increasing its deposit rate by an additional 50 basis points on February 2 as it continues to fight against raging inflation.
Despite raising rates at their quickest rate on record, the euro zone’s main bank has so far been unable to push inflation anywhere close to its 2% target. According to official figures released last week, prices increased 9.2% in December compared to a year prior.
55 out of 59 economists surveyed between January 13 and January 20 seemed to believe ECB President Christine Lagarde as well as her Governing Council will raise the deposit rates to 2.50% on February 2.
They’ll probably follow that up in March with another 50 basis point increase.
After halting, the central bank will then increase 25 basis points the next quarter, bringing the current cycle’s terminal rate to 3.25%, its highest level since late 2008. The rate was estimated to reach 2.50% at the end of March and to peak at 2.75% in the poll from December.
Over two-thirds of participants, or 23 of 33, when asked how the risks were tilted to their endpoint deposit rate estimates said that it was more likely than not that it would end higher rather than fewer than they presently anticipate.
There is a chance that they won’t hold back on their claims of aggression. Lagarde and others claimed rate increases will begin meeting by meeting in 2023, according to Silke Tober of the Macroeconomic Policy Institute (IMK).
Although there is a very real risk involved, several of them thought it would be a waste.
The rate of refinancing was predicted to increase by 50 basis points to about 3.00% the following week and peak at 3.50% in March.
The U.S. Federal Reserve is anticipated to end its tightening bias after a 25 basis point increase at each of its upcoming two policy meetings. The U.S. Federal Reserve commenced raising rates many months well before ECB.
According to the latest survey, it is then anticipated to hold rates constant for at least the remainder of the year.
The poll revealed that although inflation in the 20-nation EU has already peaked and will continue to decline, it won’t reach the ECB’s goal level until at least 2025. Inflation will be averaging 6.0% this year, 2.5% the following, but only 2.0% by 2025.
Some quarterly growth projections in the most recent poll were improved from a December survey due to the mild winter thus far, declining gas costs, and recent favourable economic indicators.
Although a structural recession was still forecast, with a drop of 0.2% in the previous quarter and 0.3% in the present one, it was now anticipated that the economy will grow by 0.1% next quarter instead of stagnating. The following two quarters are expected to see a growth of 0.3%, with unchanged medians revealed.
In response to a different question, all but one out of the 36 economists who participated agreed that the slump in the bloc is more likely to be less than anticipated than deeper.
Ken Wattret of S&P Global said the chance of devastating, energy-driven recessions has significantly decreased, and the trajectory of leading indicators, such as our PMI data, points to a greater likelihood of a faster recovery from the current slowdown in GDP.
Growth for the entire year was predicted to be 0.1%, a change from the 0.1% decline predicted last month. It was projected to increase by 1.3% in 2024, the same as what was predicted in December.
On the other hand, the euro rose to a nine-month top against the greenback on Monday as more pessimistic comments about European interest rates contrasted with market forecasts for a more subdued Federal Reserve.