ECB Set to Scale New Heights with Interest Rates Soaring to 4% in September

“Economists Predict ECB to Raise Borrowing Costs to 4% in September, Reflecting Growing Inflation Concerns”
ECB Set to Scale New Heights with Interest Rates Soaring to 4% in September

The European Central Bank (ECB) is expected to raise borrowing costs to a peak of 4% in September, according to a survey of economists. This represents a more hawkish stance as inflation continues to be stubborn. The survey suggests that there will be two more quarter-point increases, with the first one expected on July 27, as previously indicated by the ECB. The economists had previously predicted that the deposit rate would reach a maximum of 3.75%. The change in their opinion is driven by a deteriorating outlook for inflation, which is expected to moderate in the coming months but at a slower pace than previously anticipated. In addition, inflation for 2025 is now projected to be 2.1%, up from the previous forecast of 2%.

While headline inflation fades, the focus in Frankfurt is on core price growth, which is expected to be slightly lower this year compared to earlier forecasts. However, the projections for 2024 and 2025 have increased to 2.8% and 2.4% respectively, surpassing the ECB’s own projection for that year.

The survey results come at a time when the ECB is debating the end point of its series of interest rate hikes. Some officials are not ruling out the possibility of extending the campaign beyond the summer. However, concerns remain about the struggling economy, which is trying to recover from a mild recession experienced during the winter.

Slovenian central bank governor Bostjan Vasle emphasized that while monetary policy has already taken significant action, other policies must also contribute if needed. He made these comments during an event at the ECB in Frankfurt.

Despite the concerns, policymakers and analysts do not anticipate a hard landing for the economy. They predict a quarterly GDP growth rate of 0.2% after the first quarter and maintain their outlook for growth of 1% and 1.6% in 2024 and 2025 respectively. However, analysts expect the first interest rate cut to occur in April 2024.

Overall, the survey indicates a shift in economists’ expectations for borrowing costs, with a more hawkish outlook driven by concerns about inflation. The ECB’s decision on interest rates will have significant implications for the eurozone economy and its recovery from the recent recession.