ECB Preview: Forecasts from 14 major banks, another 50 bps hike

The European Central Bank (ECB) is set to announce its decision on monetary policy on Thursday, February 2 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 14 major banks.

Markets expect the announcement of a 50 bps hike in all key interest rates. Beyond the 50 bps hike, the ECB is expected to deliver detailed parameters for the reduction of the Assets Purchase Program (APP). 

Danske Bank

“Another 50 bps rate hike has been well telegraphed and fully priced by markets. We expect the ECB to continue to sound very hawkish and signal that further rate hikes are coming, in particular giving guidance for another 50 bps hike in March. We expect Lagarde to give a strong reminder to markets to tighten financial conditions. On balance, a firm hawkish message from the ECB should contribute to a stronger EUR upon announcement.” 

Nordea

“We expect the ECB to raise rates by 50 bps and confirm that another such step in March remains a reasonable baseline. We think the overall message continues to be hawkish, though there are also risks of a slightly softer tone.”

SocGen

“We expect the ECB to hike rates by another 50 bps and again in March before moving to 25 bps hikes, taking the terminal rate to 3.75% by July when the risks may become more symmetric. We also expect the APP QT to pick up pace slightly by the end of this year and full PEPP reinvestments to end by mid-2024. Detailed parameters for QT have been promised for this meeting, possibly including specific amounts for the run-down of individual programmes and guidelines on how flexible the ECB can be. We do not expect any major deviations from the capital keys or maturity structures other than some discretionary allowance to average flows over time.”

Commerzbank

“The ECB will raise interest rates by another 50 bps. But meanwhile, the doves – who dominate the Governing Council more than ever, according to our ‘Hawkometer’ – are already positioning themselves. At the May meeting, they are likely to push through a slower pace of rate hikes and then end the rate hike cycle at a deposit rate of 3.25%.”

Nordea

“Another 50 bps move should be done deal, and we expect the general tone to remain hawkish. However, given the recent falls in energy prices and the absence of new forecasts, there are also risks that the tone could become more dovish.”

TDS

“We expect the ECB to hike rates by 50 bps and maintain its hawkish tone, with President Lagarde repeating recent statements about markets needing to reprice higher still. A ‘sleepy’ ECB meeting probably won't do much for the EUR at these levels. Barring CHF, EUR trades at a premium to SEK, NOK, GBP, and USD on top-down macro models. In turn, the risk-reward argues to wait for a EUR/USD pullback towards the 1.06 area to open up buying opportunities, and we prefer EUR/CHF longs into the meeting.”

Rabobank

“A 50 bps hike is well-telegraphed, but the ECB may want to give less guidance about its next move than it did in December. This adds downside risks to money markets that are priced for a 50 bps hike in March as well. We still expect the ECB can scale back to 25 bps hikes from March, but the stronger outlook and wage pressures could delay this and pose upside risks.”

Nomura

“A half-point hike looks very likely. On quantitative tightening, we expect the ECB to outline specifics with respect to the portion of APP portfolio redemptions to be reinvested. In particular, we expect the ECB to allow itself the same flexibility with respect to reinvestments as it has done with the PEPP. Finally, we expect another hawkish press conference, particularly if the ECB is unhappy with the way markets are likely to respond to a potentially weaker January inflation print. That should (i) recalibrate market expectations on near-term rate hikes and (ii) put an end to market pricing of rate cuts during 2023.”

Wells Fargo

“We believe the ECB will deliver a 50 bps rate hike. The message is likely to be that while headline inflation is receding, core inflation is still uncomfortably high and has not shown meaningful signs of rolling over just yet. We also believe that the ECB will communicate that a similar degree of tightening will be required at the next meeting to make sure inflation expectations do not spiral. President Lagarde is also likely to note that subsequent decisions will be data-dependent, which means a terminal rate of 3.25% by Q2-2023.”

Crédit Agricole

“Not only do we expect another 50 bps hike at the February meeting, but we also expect an implicit commitment for at least another 100 bps of hikes to come: long is the road, but deep is the ECB’s faith. The main focus of the meeting is likely to be the future path of rate hikes: February’s hike seems to be a done deal – 50 bps – consequently the question is rather what the ECB will do in March and May. We expect a confirmation of the hawkish tone delivered in December – and consequently a repricing of markets.”

ING

“All eyes and ears will once again be on communication. A rate hike of 50 bps looks like a done deal, but how far and how fast the ECB will go from there is still unclear. We expect hawkish comments by ECB President Christine Lagarde in order to prevent another drop in market interest rates. Current market expectations about ECB rate cuts in 2024 are premature.”

Citibank

“The fall in gas prices is interpreted by many as an indication that inflation in Europe was transitory after all. But it is also often interpreted to mean that the ECB will quickly depart from the ‘steady pace’ of rate hikes it promised in December. We disagree and expect the ECB to stick to 50 bps hikes at the next two meetings.”

Deutsche Bank

“We expect another 50 bps hike that would take the deposit rate to 2.50%. We also emphasise the importance of communicating expectations for the March meeting since core and underlying inflation remain sticky. We see further 50 bps and 25 bps hikes in March and May, respectively, and a terminal rate of 3.25%.”

NAB

“We see the ECB hiking rates by another 50 bps taking the Deposit Rate to 2.5% with another hike likely to be signalled for the 23 March meeting.”