by Swathi Nair
BANGALORE (Reuters) – The European Central Bank is expected to stick to guidance given in recent weeks and raise its deposit rate by 25 basis points next Thursday, a Reuters survey shows, although a narrow majority of economists polled favor a half point raise.
Sixty-two of the 63 professionals who took part in this survey conducted between July 8 and July 15 said they expected the ECB to start raising its rates with a quarter-point hike, which would take the rate of deposit at -0.25%. The last said to expect a rise of 50 basis points.
But a majority (19 out of 35) of those who answered a subsidiary question said they believe that they should raise the deposit rate to zero as soon as possible by choosing a half-point hike on the 21st. July.
“The only factor that speaks against a 50 basis point hike in July is the fact that the Bank has pre-announced 25 … It will take long explanations to justify a divergence,” said Peter. Vanden Houte, Chief Economist of ING.
A majority of economists surveyed expect a rise of 50 basis points in September and then increases of 25 points in September and December, which would take the deposit rate to 0.75% at the end of the year against -0.5% today. today.
And the rise is expected to continue in 2023, with the deposit rate expected at 1.5% in the third quarter of next year.
But many economists believe the window of opportunity for monetary policy tightening is narrowing, with soaring energy prices weighing on consumers’ purchasing power and raising the risk of a recession in the euro area.
The median of the probabilities of recession over a one-year horizon given by the participants in the survey thus stands at 45%, against 34% in the previous survey.
“The ECB is way behind schedule and risks losing credibility by not taking decisive action… It should quickly end negative rates in July and then raise rates by another 50 basis points in September and October,” said Martin Weder, senior economist at ZKB, the only participant to advocate a half-point rate hike next week.
“I believe an unexpected 50 basis point rate hike in July would show that it takes inflation and price stability seriously, which would support the euro,” he explained.
Economists forecast parallel growth of 2.7% for the euro zone this year and 1.5% next year, against 2.6% and 1.8% respectively a month ago.
The median of their 2022 growth forecasts for Germany fell to 1.5% against 2.2% in the last quarterly survey, carried out in April.
For France, it falls from 3.2% to 2.4%.
“My personal opinion is that there is a 70% to 80% risk of a recession in Germany, and a little less for the euro zone as a whole,” said Erik Nielsen, chief global economist at UniCredit.
Inflation is expected to average 8.5% for the second quarter but is expected to decline slowly over the coming months, while remaining above the ECB’s 2% target until the end of 2023 in less.
(Report Swathi Nair, French version Marc Angrand, edited by Kate Entringer)
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