According to a Reuters poll, despite the EU almost certainly entering a recession, the European Central Bank will continue to tighten policy, raising its deposit rate by 50 basis points next month as it worries that rapid price growth is becoming entrenched. Inflation in the region has soared due to rising energy prices following Russia’s invasion of Ukraine and disrupted supply chains, reaching 10.6% last month – more than five times the ECB’s 2.0% target.
Although the central bank started raising interest rates later than most of its major counterparts in July, initially declaring that rising inflation was only temporary, it has since increased its benchmark rates by 200 basis points.
According to the median predictions in the Nov. 15–21 Reuters poll, it will increase the deposit rate by another 50 bps on Dec. 15, bringing it to 2.00%, and the refinancing rate by the same amount, bringing it to 2.50%.
A majority of 62 respondents (45) agreed with this assessment of the deposit rate, while 14 said it would increase by another 75 bps as it did at its previous two meetings. Only three people indicated they would like a moderate 25-bp increase.
Graph: ECB monetary policy outlook for December according to a Reuters poll
The European Central Bank (ECB) will boost interest rates once more to combat inflation, albeit they might be less significant than recent rises, the bank’s chief economist, Philip Lane, said on Monday, repeating remarks made by other policymakers in recent days.
The rise in December will be followed by a second 50-bp hike the following quarter, giving the deposit and refinancing rates their current cycle peaks of 2.50% and 3.00%, which is unchanged from a poll taken in October.
18 out of 22 economists who were asked about the risks to their deposit rate projections responded that it would end higher, either earlier or later than they anticipated. The other four predicted a decrease.
According to Ken Wattret, vice president of economics at S&P Global Market Intelligence, “more resilient economic conditions, the stickiness of inflation, potential spillovers onto inflation expectations, and longer-lasting wage pressures could force the ECB to keep tightening for longer into 2023 than we currently predict.”