Banks expect ECB rate to be at 0% by the end of the year after last meeting

Investment banks advanced their forecasts for increases in interest rates by the European Central Bank (ECB), after an aggressive turn by the entity that opened the door to the possibility of increasing borrowing costs this year.

With inflation in the euro zone at an all-time high in January, the president of the ECBChristine Lagarde refused to repeat her earlier comment that a 2022 rate hike was highly unlikely at a news conference after Thursday’s monetary policy meeting.

Sources told Reuters after the meeting that a decision to taper stimulus in March now seemed likely, starting with a faster-than-expected winddown of ECB bond purchases, which guidance says must end before they start rising. Interest rates.

The new estimates put banks a little more in line with market prices. In addition to a sharp price revision on Thursday, money markets moved on Friday to price in a first rate hike of 10 basis points (bps) for June 2022 and 50 basis points for December.

Analysts at Goldman Sachs said on Friday they expected the ECB will increase interest rates by 25 basis points each in September and December, finally leaving the entity’s policy rate at 0% by the end of the year.

The monetary policy authorities would decide in March to end the asset purchase program in June and increase their deposit rate by 25 basis points at each meeting in September and December, according to forecasts.

“After yesterday’s big high inflation surprises and slightly more aggressive policy turn, we now expect a substantially earlier ECB stimulus exit”, the investment bank strategists said in a note, where they also revised their inflation forecasts upwards.

Deutsche Bank, BNP Paribas, BofA Y Commerzbank they also revised their forecasts late on Thursday to indicate they expect rate hikes to start in September, with two 25 basis point hikes by the end of the year, and estimate bond purchases to end in the second or third quarter.

Others, such as JPMorgan and Danske Bankwere a little more cautious, expecting only a 25 basis point rate hike in December.

The economists of ENG and Citi also said they saw room for a rate hike this year.