by Jonathan Cable
LONDON (Reuters) – The peak for European Central Bank interest rates will be much higher than estimated just a month ago, as the tenacity of inflation leads officials at the institution to show more aggressive, according to a Reuters survey published on Friday.
All of the economists (or 60 people) polled by Reuters from March 7-9 expect the ECB to hike rates by 50 basis points on March 16, with the central bank president saying on Sunday the move was ” very very likely.”
Quarter-point hikes are expected to follow in May, June and July, according to the median of estimates from economists polled, which would lift the deposit rate to 3.75%, higher than the 3-point peak. .25% anticipated in the February survey.
“A 50 basis point rate hike next week appears to be a done deal. The hottest debate at the ECB will be over the path of monetary policy after the March meeting,” said Carsten Brzeski at ING.
But like members of the ECB, whose views differ on the terminal level of rates, economists are also divided.
Nineteen of them believe that the deposit rate will peak at 3.75%, 12 others believe that the terminal level will be higher and 29 expect a lower rate.
Markets anticipate a terminal deposit rate of 4.00%.
However, 35 of the 38 economists who responded to an additional question said their estimate of the final rate was likely to be higher than they currently think.
Inflation within the euro zone, which reached 8.5% in February, is expected to decline but remain higher at least until 2025 than the ECB’s target of 2%.
It is expected to fall to 5.8% on average this year and 2.5% in 2024, according to the survey.
“The real economy has been stronger than expected at the start of the year, implying a less significant slowdown than expected, while underlying inflation has been much higher,” said Luca Mezzomo at Intesa Sanpaolo .
Some indicators came out above expectations, especially during the winter, but the recovery is timid and statistics confirmed on Monday that no recovery is in sight even if a recession could be avoided.
The estimated probability of a recession this year is now only 34% compared to 50% in January.
However, the Eurozone economy is expected to remain sluggish with GDP falling 0.1% in the first quarter, followed by an expansion of just 0.1% over the following three months. This contraction will be followed by growth of 0.2% in the last two quarters of the year, according to forecasts revised at the margin compared to February.
Over the full year, the economy will grow by 0.5% before growth picks up.
(Jonathan Cable; with Susobhan Sarkar and Vijayalakshmi Srinivasan, French version Laetitia Volga, editing by Kate Entringer)
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