ECB: Deposit rate of 3.25% will not be enough to push inflation back to 2% in the medium term – Commerzbank

As widely expected, the ECB Governing Council raised the key interest rates again by 50 basis points. Economists at Commerzbank expect the ECB to reduce the pace of interest rate hikes to 25 bps in May. The deposit rate would then be 3.25%.

Is 3.25% enough?

“As expected, the ECB raised its deposit rate by 50 bps to 2.5%. Moreover, it has already suggested a further rate hike of the same amount for the March meeting.” 

“For the meeting thereafter in May, however, we expect the pace of rate hikes to be reduced to 25 bps because inflation should continue to fall.”

“At 3.25%, the end of the rate hike process would then be reached, even if we do not consider this sufficient to bring inflation back down to 2% in the medium term.”