by Yoruk Bahceli
LONDON (Reuters) – Investment banks have revised their expectations for interest rate hikes from the European Central Bank (ECB) after a change in tone from the institution’s president, which opens the door to a possible tightening money this year.
As inflation in the eurozone hit a record high in January, Christine Lagarde refrained from repeating that a rate hike this year was “very unlikely” at a press conference on Thursday following the meeting of the Board of Governors.
A decision in March on cutting monetary support now looks likely, barring a sharp drop in inflation, two sources told Reuters.
Banque de France Governor Francois Villeroy de Galhau said on Friday that the ECB will not rule out any options before its March meeting and in the following quarters in the face of growing uncertainty over price developments.
Goldman Sachs now expects the ECB to raise rates by 25 basis points each in September and December, which would take the deposit rate to 0% by the end of the year.
“Following the upside inflation surprises and the ECB’s ‘hawkish’ turn on Thursday, we now expect ECB monetary tightening to materially sooner,” the U.S. bank’s strategists said in a note. also revised their inflation forecasts upwards.
Deutsche Bank, BNP Paribas, Bank of America and Commerzbank are also expecting a new cycle of rate hikes from September, with two increases of 25 basis points by the end of the year.
JP Morgan and Danske Bank expect just one 25 basis point rate hike in December.
Banks differ on the extent of rate hikes for the coming years.
After two hikes in 2022, Goldman Sachs expects a pause until June 2023, followed by hikes every six months until reaching a rate of 1.25% in June 2025.
BNP Paribas is banking on two more increases in 2023, Deutsche Bank expects a rate of 1% before the end of 2024 while Commerzbank expects a resumption of the increase cycle in the second half of 2024.
(Report Yoruk Bahceli and Saikat Chatterjee, with Stefano Rebaudo and Vidya Ranganathan, French version Laetitia Volga, edited by Sophie Louet)