ECB Expected To Hike Rate By 75 Basis Points Next Week

Next week’s the European Central Bank monetary policy meeting will be a key event that attracts traders’ attention. According to analysts a 75 basis points interest rate hike is highly expected. Analysts also believe that the deposit rate will reach 3% by March 2023.

ECB’s Lagarde will have to acknowledge additional inflationary risks, but observers widely expect her to stick to the stance that the ECB is merely ‘frontloading’ normalization.

With a 75bp increase next week and the prospect of another jumbo hike in December, it is arguable whether the ECB’s tightening cycle can still be considered as ‘frontloading’, or whether this slogan will have to face the same fate as the famous ‘transitory’ comment earlier this year.

The inflation expectations are still deteriorating, with a strong acceleration in underlying price pressures. This factor cements a 75bp hike this month. Moreover, it is difficult to see how core inflation could come in below 3% in 2024.

A 75bp rate hike in October seems as a closed deal. This is why economists have also upgraded their expectations for the next few meetings, and now see the deposit rate could reach 3% by March.