ECB Preview: Forecasts from 10 major banks, another 50 bps, but what’s next?

The European Central Bank (ECB) is set to announce its decision on monetary policy on Thursday, March 16 at 13:15 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of 10 major banks.

ECB is likely to hike the deposit rate by 50 basis points to 3.0% at its March meeting. All eyes will remain on the bank’s staff projections and policy guidance.

Nordea

“The ECB will hike by 50 bps at the March meeting, and we expect the central bank to signal another such step is likely in May. Amidst a divided Governing Council, Lagarde may seek a compromise by toning down the overall message further out, while signalling another large hike for May. In light of the high market expectations, we think even hints of a balanced message on the future would be met with a dovish market reaction. Core inflation forecasts are set to see further upside surprises, supporting further rate hikes ahead.”

Commerzbank

“It should be a done deal that the ECB will raise interest rates by 50 bps next week. What happens next will be largely determined by the new projections published next Thursday by the ECB experts, which the Governing Council will use to reassess the economic situation. We think the ECB will raise interest rates by another 50 bps in May, although the central bankers are unlikely to announce this move as early as this week. However, we expect a slower pace of rate hikes from June onwards, with rate steps of only 25 bps.”

TDS

“The decision to hike 50 bps in March was essentially made last month, and won't come as a surprise. We expect forward guidance to be dropped and a genuine shift to data-dependency from here. Projections will likely show lower headline inflation and stronger core inflation and growth. While we hold our terminal rate at 3.75%, terminal rate pricing around the ECB will likely remain fluid for some time yet, at least until the market can settle on the Fed. This is likely to keep EUR/USD stubbornly holding recent ranges but the EUR biased to outperform on the crosses, particularly against currencies that have household debt imbalances (for example SEK, CAD, AUD).”

Rabobank

“A 50 bps rate hike is all but a given. Risks to our 3.5% terminal rate forecast are skewed to the upside, with both the possibility of another 50 bps hike in May or a compromise of ‘slower for longer’ hikes after March.” 

Credit Suisse

“We expect the ECB to hike rates by 50 bps to 3.00% and maintain the guidance to ‘stay the course in raising rates significantly at a steady pace.’ We expect another 50 bps rate hike in May followed by two more 25 bps rate hikes in June and July – but we do not think the ECB will pre-commit to another 50 bps hike in May explicitly, as there is an increasing need to be data-reactive as rates enter restrictive territory. That may initially disappoint markets, as it would keep the door to a smaller 25 bps rate hike in May open in case data weaken. However, during the press conference, we would expect President Lagarde to note that the ECB may well continue hiking in 50 bps increments if the data remain strong – so the overall tone of the press conference may be more hawkish than the initial statement and sustain the current market pricing of a ~4% terminal rate.”

Deutsche Bank

“A 25 bps hike seems the more likely move than 50 bps, which would take the deposit rate up to 2.75%. Nevertheless, our view is that it would take a significant and persistent financial conditions shock to offset the upside risks to price stability. So with the re-acceleration in core inflation recently, we continue to see 3.5-4% as the main landing zone for the terminal rate.”

SocGen

“We expect the ECB to hike its key rates by 50 bps, and we raise our terminal rate forecast to 4% in September. We also expect a gradual rise in APP QT in 3Q and 4Q, and the start of PEPP QT in early 2024.”

Wells Fargo

“Policymakers have communicated and telegraphed a 50 bps rate hike, which in our view, local economic conditions still warrant following through on that guidance. Right now, we believe the ECB will deliver rate hikes that eventually take the Deposit Rate to 3.50%. However, we acknowledge upside risks to our forecast have materialized since our last forecast update. With inflation, primarily driven by wage gains, still elevated and softening only gradually, the Deposit Rate could be lifted toward a terminal rate closer to 4.00%. We will be particularly focused on forward guidance provided by the ECB statement as well as by ECB President Lagarde during her press conference immediately after the monetary policy decision.”

CitiBank

“We expect the council to avoid another explicit commitment (or public intention) to any given pace of rate hikes, not least as April is due to see a number of important data releases. However, we do expect fairly clear guidance that in order to slow and stop rate hikes, the council needs (1) several consecutive decreases in core inflation (2) buttressed by a deceleration in wage growth or a rise in unemployment.”

ANZ

“We expect that the ECB will maintain hawkish guidance on rates, and we maintain our forecast that it will raise rates to 4.0%. Financial stability considerations may persuade the ECB to diverge from its guidance that rates will rise 50 bps at this week’s meeting, but that will only extend the rate hiking cycle. The ECB, along with other central banks, must differentiate between financial stability policies and monetary policy. Returning inflation to target is fundamental to both. We also expect the ECB to indicate that future policy decisions will be determined by the data and outlook for inflation. That would preserve its hawkish guidance.”