Major banks including Credit Suisse and Deutsche Bank warned investors to expect another 0.75% interest rate hike from the European Central Bank (ECB), following its jaw-dropping 0.75% rise on Thursday.
The ECB delivered the massive interest rates increase in a bid to fight soaring inflation across Europe, driven by spiking energy and food prices as a result of Putin’s war in Ukraine.
The Bank revised its expectations for economic growth and inflation, confirming projections of 8.1% inflation in 2022, 5.5% in 2023 and 2.3% in 2023.
“The ECB has raised rates by an unprecedented 0.75% in response to the recent surge in inflation, ratcheting up the pace of policy tightening as both the Fed and BOE have done in recent months,” said Kingswood strategist Rupert Thompson.
“It is very much prioritising getting inflation back under control even as the economy looks headed into recession later this year.”
The ECB announced it would likely issue further rate hikes at its next several meetings as it worked to fight inflation.
“It is likely to be another close call in October and we have shifted our view to expect another 75bp hike (previously: 50bp),” said Deutsche Bank analysts in a note.
“This underscores the ECB’s insensitivity to the growth headwinds and laser focus on bringing inflation down.”
Meanwhile, Credit Suisse noted the ECB’s confidence in additional rate hikes moving forward, shifting its forecast from a 0.5% hike to 0.75%, and lifted its forecast for the institution’s terminal rate to hit 2.5% from a prior expectation of 2%.
Citibank said it maintained projections of a 0.75% climb in October, followed by a 0.5% rise in December before economic weakness incentivises the Bank to pump the brakes on its aggressive rate hikes.
