ECB to bring interest rates 'to a peak of 4% in September'

Despite that optimism, economists expect the first cut in interest rates to come only next April

European Central Bank president Christine Lagarde: Two more rate hikes likely, say economists.

The European Central Bank will hike borrowing costs to a peak of 4% in September, according to a survey of economists who are becoming more hawkish as inflation proves to be stubborn.

Such an outcome would mean two more quarter-point moves — starting with one on July 27, as the ECB has widely telegraphed. The analysts polled by Bloomberg had previously predicted the deposit rate would reach a maximum of 3.75%. 

Behind their change in opinion is a worsening outlook for inflation. While price gains across the eurozone will moderate in the coming months, they will not do so as quickly as previously expected. What is more, inflation in 2025 is now seen at 2.1% — up from 2% before.

Core price growth — the focus in Frankfurt even as headline inflation fades — is seen a touch lower this year than earlier. But the 2024 and 2025 projections have risen to 2.8% and 2.4%. The latter number exceeds the ECB’s own projection for that year. 

End point

The results come as a debate at the ECB over the end point of its unprecedented bout of hikes heats up. Some officials refuse to rule out an extension of the campaign beyond the summer, though several worry about the economy, which is struggling to exit the mild recession it fell into during the winter.

“Monetary policy already did a lot,” Slovenian central bank governor Bostjan Vasle said on Monday. “We are prepared to do more if needed,” he told an event at the ECB in Frankfurt, stressing other policies must contribute as well.

Policymakers reject talk of a hard landing and analysts concur, predicting advances of 0.2% in gross domestic product in each quarter after the first and maintain their outlook for growth of 1% and 1.6% in 2024 and 2025. Despite that optimism, they expect the first cut in interest rates to come in April 2024.