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BENGALURU, June 23 (Reuters) – The European Central Bank will raise its deposit rate above zero for the first time in a decade in September, according to most economists polled by Reuters, who expect it be at least 50 basis points higher than before. expected by the end of the year.
With economists saying eurozone inflation has yet to peak, the ECB has given itself some leeway to catch up with global peers, who are rapidly raising rates back to neutral, by providing a new instrument to limit the divergence of the bloc’s bond yields. Read more
The June 15-22 poll showed that all but two of the 55 economists expected the ECB to deliver a quarter-point hike on July 21 to -0.25%. Two expected it to rise 50 basis points, up from none in the last poll.
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A strong majority of 91%, or 50 out of 55 economists, expected the Bank to raise its key rate by 50 basis points in September, lifting the deposit rate out of negative territory at 0.25%.
Forecasters last month expected the ECB to wait until the fourth quarter to bring the deposit rate, currently -0.50%, back into positive territory.
About 60% or 33 out of 55 economists saw another 25 basis point hike in October and about 85% or 47 out of 55 expected the same hike in December, taking the deposit rate to 0.75% of here the end of the year.
But some forecasts for its position at the end of December were as high as 1.25%, underscoring the possibility of bigger moves.
“The ECB is embarking on a race to neutrality to stem rising underlying inflationary pressures…Risks to the near-term outlook are skewed towards a faster rise,” said Paul Hollingsworth of BNP Paribas. .
“Particularly because of the likely upside surprises in inflation, but also because the presence of a support facility to some extent allays concerns about potential spillovers to peripheral spreads.”
RECESSION?
The bank’s neutral deposit rate is between 1.00% and 1.75%, the poll of a smaller sample showed, and it is expected to rise to within that range next year.
The poll forecast hikes of 25 basis points in the first, second and third quarters of next year, pushing the deposit rate to 1.50%, within the terminal rate range of 1.25% to 1.50% .
“We expect the weakness in growth to become clearer in the coming months, which should encourage the ECB to remain cautious… A modest recession is now our baseline projection,” said Bas van Geffen of Rabobank.
“A recession will force the ECB to stop its bullish cycle, but if inflation or expectations show no signs of slowing, the ECB could be forced to continue regardless of such a slowdown.”
Economists responding to a supplementary question said there was about a one in three chance of a recession within a year, slightly higher than in the last poll. Only two respondents had two consecutive quarters of contraction in their forecasts, the technical definition of a recession.
The economy is expected to grow 2.6% on average in 2022 and then 1.8% next year, according to median forecasts from around 70 economists.
More than 70% or 25 of 34 economists said in response to a supplementary question that euro zone inflation had not yet peaked. Twenty said it would happen in the third quarter, four said this quarter and one said in the fourth quarter.
Inflation, which hit a record high of 8.1% last month, is expected to average 8.3% in the next quarter, more than four times the ECB’s 2.0% target . It should then gradually subside, but will not be close to the goal before the end of 2023.
(For more stories from the Reuters Global Economic Survey:)
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Reporting by Swathi Nair; Poll by Prerana Bhat and Vijayalakshmi Srinivasan; Editing by Jonathan Cable and Alison Williams
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