The European Central Bank, which appears to be maintaining a wait-and-see stance on the surface, is in fact standing at the edge of a policy turning point, with notable divergence emerging among institutions regarding the timing of interest rate hikes.
Multiple institutions generally anticipate that the European Central Bank (ECB) will keep interest rates unchanged, primarily due to high uncertainty and the need for policy flexibility. However, against the backdrop of rising energy prices and conflict-related shocks, the risk of inflationary pressure is significant. Some institutions believe there may be a possibility of rate hikes by the end of the year or even earlier, while other views suggest delaying such hikes until 2027. Overall, divergence in policy paths is widening, but the inclination appears to shift from 'remaining on hold' to 'tightening to prevent inflation.'
Investment bank forecasts
Reuters survey: The European Central Bank is expected to maintain its interest rate unchanged. Among 72 surveyed economists, 67 predicted it would keep the rate at 2% through the end of 2026.
BNP Paribas: The ECB is anticipated to keep interest rates unchanged. If the conflict escalates and the energy supply chain suffers severe damage, the central bank is highly likely to be compelled to resume the process of raising interest rates.
Vanguard: The ECB is forecasted to maintain its current interest rate. It is expected to remain on hold until the end of the year, though it has removed its previously downward-leaning bias regarding future policy rates.
ABN AMRO: The ECB is projected to keep its interest rate steady. In an adverse scenario, Eurozone inflation could be significantly higher than baseline expectations, creating the possibility of rate hikes starting as early as April.
Citigroup: The ECB is anticipated to maintain its interest rate. The basic assessment is that uncertainty provides justification for staying on hold, but the possibility of implementing several precautionary rate hikes cannot be ruled out.
Goldman Sachs: The ECB is expected to leave interest rates unchanged. Under an extremely unfavorable energy scenario, the ECB might implement three consecutive 25-basis-point rate hikes starting in June, with a potential hike in April also considered possible.
Ebury: The ECB is anticipated to maintain its interest rate. The conflict makes the next move more likely to be a rate hike rather than a cut. Lagarde will likely emphasize that 'the ECB will not allow a dangerous spike in inflation to occur.'
TS Lombard: The ECB is expected to keep its interest rate unchanged. Although market pricing for rate hikes this year seems overly aggressive, considering that rising natural gas prices have become the baseline scenario for next year, the threshold for rate hikes in 2024 has been somewhat lowered.
Danske Bank: The European Central Bank is expected to keep interest rates unchanged while emphasizing the need to remain vigilant about upside risks to inflation. Rising energy prices have made the policy outlook more complex, with policymakers showing a stronger preference for retaining flexibility.
Berenberg Bank: The European Central Bank is expected to keep interest rates unchanged. Even if the conflict persists longer and the energy price shock drags the economy into stagnation, interest rate hikes may be postponed until the second half of 2027.
SEB: The European Central Bank is expected to maintain interest rates at their current level. The economic forecasts released in March may not fully incorporate the impact of the conflict and are likely to show slightly better economic growth and slightly lower inflation.
KfW: The European Central Bank is expected to keep interest rates unchanged. The recent rise in energy prices has not persisted long enough to compel the central bank to raise rates; 'vigilance' may become a frequently used keyword for Lagarde.
Editor/Doris