ECB towards rate hike: here is the analysts’ view

ECB Lagarde disappoints less hawkish but possible

(Finance) – The ECB is expected to announce next Thursday a interest rate increase of 75 basis points. the largest carried out so far in response to continuing inflation and the Fed’s more resolute policies.

For the investment bank Goldman Sachs the framework ofinflation has worsened from the July meeting, and it is therefore likely that the new Frankfurt projections will make a large upward adjustment of the forecasts for 2022-2023, while cut
“sharply” the growth forecastsin light of the slowdown in momentum and the ongoing energy crisis.

THE comments recent of the board members – recalls the bank – were rather “hawk”, in particular Isabel Schnabelwhich in Jackson Hole said it was necessary “act with force” to bring inflation back to target “quickly”. Other ECB governors have also followed in his footsteps, saying they are in favor of a 75-point hike, while they have appeared very limited interventions by those who favor a “constant” rise In this situation – he underlines – “a 50-point hike would be a great dovish surprise that we believe would be difficult to communicate in light of strong inflation data”.

Analysts from Generali Investments they do not rule out the scenario of a possible major increase of 75 basis pointsat the next meeting even if for the rest of the year they await increases of 50 bp to bring by the end of the year the official rate at 1.5%, ie the average level of the estimated range of the neutral rate.

In September / October – they say – data of inflation around 10% on an annual basis, but some moderation will be on the way thereafter. Given the latest gas price increases, inflation forecasts have been adjusted upwards, to 8.1% (from 7.8%) for 2022 and to 4.5% (from 4.4%) for 2023. Market-based inflation expectations and Survey of Professional Forecaster projections continue to show inflation above the 2% medium-term target and some parameters have worsened further in recent times.

In this context – it is stated – it is not surprising that the members of the ECB Governing Council have adopted a more aggressive stance and that, in his Jackson Hole speech, Schnabel stressed the need to act quickly and decisively to reduce inflation and tame inflation expectations.

Also PGIM Fixed Income believes the ECB will raise interest rates by 75 percentage points at its next meeting, but notes that “it is not clear if such an incisive move is justified”. According to experts, “higher and prolonged inflation risks taking root in the economy, making the painful resorption of the energy shock more difficult. The ECB will be very anxious to avoid aggravating an already difficult situation for the eurozone”

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