European Central Bank to raise deposit rate to 3.25% by mid-year

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reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=EUGDPQAP GDP survey data

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reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=EUECBDQP Long-term ECB deposit rate outlook

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reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=EUREFIQP Long-term ECB refi rate outlook

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Reuters survey chart of ECB deposit rate outlook https://tmsnrt.rs/3XEYXqq

LONDON, Jan 23 (Reuters) – The European Central Bank will deliver a 50 basis point interest rate hike at each of its next two meetings, according to economists polled by Reuters, whose forecasts it still risks lagging behind policymakers’ guidance on how high rates will go. .

Rate-setters have failed to convince markets of their commitment to further increase borrowing costs to curb inflation, evident in the survey, which showed the central bank would stop when the rate of -the deposit will reach 3.25% the next three months.

The latest survey findings come despite ECB President Christine Lagarde telling investors in Davos last week that they should “review their positions”, adding weight to earlier comments from Dutch and Latvian policy makers.

Although the eurozone central bank has been raising rates at the fastest pace on record, it has so far failed to bring inflation close to its 2% target. Prices rose 9.2% in December from a year earlier, official data showed last week.

Lagarde and her Governing Council will take the deposit rate to 2.50% on February 2, said 55 of 59 economists in the January 13-20 survey. They are likely to follow this with another lift of 50 basis points in March.

The central bank will then increase 25 basis points next quarter before pausing, giving a terminal rate in the current cycle of 3.25%, the highest since late 2008. In the December survey, the rate was put at 2.50% at the end of March and was seen topping out at 2.75%.

Asked how the risks were skewed to predict their terminal deposit rate, more than two thirds of respondents, 23 out of 33, said it was more likely to end up higher than lower than they currently expect.

“The risk is that they will actually be aggressive as they claimed. Lagarde and others said that we are in the long run where we will raise rates by meeting in 2023,” said Silke Tober at the Macroeconomic Policy Institute (IMK) .

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

The refinancing rate was expected to increase 50 basis points to 3.00% next week and reach a peak of 3.50% in March.

The US Federal Reserve, which began raising rates many months before the ECB, is expected to end its tightening cycle after a 25 basis point increase at each of its two meetings its next policy. Then it is expected to keep rates stable for at least the rest of the year, according to a recent Reuters poll.

UPGRADE GROWTH

The survey found that inflation has already peaked in the 20-nation EU, and will decline, but did not appear in the ECB’s target until at least 2025. Inflation will average 6.0% this year and 2.5% next but will be around 2.0%. 2025.

A mild winter so far, falling gas prices and recent positive economic data meant some quarterly growth forecasts were improved in the latest survey from a December survey.

Although a technical recession was still forecast – with a contraction of 0.2% last quarter and 0.3% in the current one – the economy was now expected to grow by 0.1% next quarter rather than flatline. It is predicted to expand 0.3% in the next two quarters, medians showed unchanged.

When asked in a supplementary question whether the recession is likely to be deeper, or shallower than expected, all but one of the 36 economists said it was more likely to be shallower than deeper.

“Not only has the risk of severe, energy-driven recessions fallen markedly but the direction of travel of leading indicators, including our PMI data, points to an increasing likelihood of earlier growth than expected,” said Ken Wattret at S&P. Global.

During this year, growth was pegged at 0.1%, a change from the forecast of a contraction of 0.1% last month. In 2024 it was expected to grow 1.3%, unchanged from the December forecast.

(For other stories from the Reuters global long-term economic outlook survey package:

(Reporting by Jonathan Cable; voting by Aditi Verma, Sujith Pai and Sarupya Ganguly; editing by Jonathan Oatis and Sharon Singleton)

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