ECB: We have significantly increased our rate expectations through 2023Q1

A key event next week is the European Central Bank meeting. According to analysts from Rabobank, a 75 basis points interest rate hike is a done deal. They see the deposit rate reaching 3% by March next year.

Key Quotes:

“The inflation outlook continues to deteriorate, with a strong acceleration in underlying price pressures. This cements a 75bp hike this month. Moreover, it is difficult to see how core inflation could come in below 3% in 2024.”

“President Lagarde will have to acknowledge additional inflationary risks, but we expect her to stick to the narrative that the ECB is merely ‘frontloading’ normalisation.”

“A 75bp rate hike in October seems like a done deal. We have also upgraded our expectations for the next few meetings, and now see the deposit rate reach 3% by March.”

“With a 75bp increase next week and the prospect of another jumbo hike in December, it is debatable whether the ECB’s tightening cycle can still be considered as ‘frontloading’, or whether this catchphrase will suffer the same fate as ‘transitory’ did earlier this year. We would argue the latter, but with the ECB sticking to its meeting-by-meeting approach, we don’t expect President Lagarde to discontinue ‘frontloading’ as descriptor of next week’s hike.”

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