The European Central Bank’s next steps to tighten policy are outlined by UBS in a note in the shadow of aggressive statements by central bank officials in recent days about the need for more aggressive action to control inflation.
In particular, UBS expects the ECB to raise interest rates by 50 basis points on September 8, taking the rate on the deposit facility to 0.5%.
The bank notes that given the recent hawkish rhetoric from several ECB members, deciding on a hike “between 50bp and 75bp will be difficult, but overall, our baseline scenario remains for a 50bp step m.b.”.
The decision will be based on experts’ new macroeconomic forecasts, which are expected to be for lower growth and higher inflation, the bank added.
As for the ECB’s next steps in policy tightening, the bank notes that although it previously expected the next hike in October to be 25 bp. now predicts an increase of 50 m.p. It then expects another increase of 25 bp. in December to 1.25% until the end of 2022.
For 2023, the bank expects three more increases of 25 bp. each time, in February, March and May, bringing the interest rate to 2.0%, which is expected to close the policy tightening cycle.
Source: Capital
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