European Central Bank: Hikes rates with hawkish tone – Deutsche Bank

Deutsche Bank’s European economists highlight that the ECB delivered its first rate hike since 2023, lifting the deposit rate to 2.25% and pairing it with hawkish messaging from President Lagarde. The bank maintains a forecast for another hike to 2.50% in September and sees a higher probability of rates reaching 2.75% than stopping at 2.25%.

ECB path seen extending beyond September

"Aside from the Middle East news, the big story yesterday was the first ECB rate hike since 2023, with a 25bp move that lifted their deposit rate to 2.25%."

"Moreover, there were some hawkish undertones, as Lagarde described the hike as "completely warranted and justified”, even in the ECB’s milder scenario, and noted how the inflation shock was becoming broader in nature."

"Indeed, the ECB lifted their inflation projections, and now expect headline inflation to average 3.0% in 2026 (prev. +2.6%) with core inflation projected to stay above 2% all the way to 2028 (+2.2%)."

"Our own European economists are sticking to their view of one more rate hike to 2.50% in September with their economic forecasts being softer than the ECB's."

"Interestingly they say that another hike to 2.75% is more likely than stopping here at 2.25%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)