The vast majority of economists surveyed by Reuters said that the European Central Bank will pause its more than a year-long interest rate hike policy in September, but there is still a possibility of further rate hikes by the end of the year as inflation intensifies.
Since July 2022, the European Central Bank has carried out nine consecutive rate hikes. However, after raising interest rates by 25 basis points last month, ECB President Christine Lagarde began paving the way for a pause during a press conference, leaving it under consideration whether to continue hiking rates.
The economic performance of Germany, the eurozone's leading economy, will affect the stability and growth of the entire European region. Lagarde also noted that the upcoming data will be crucial for future decisions. The European Central Bank may make significant policy decisions in September, deciding whether to continue raising rates, maintain or intensify its tightening monetary policy, or opt to pause rate hikes for a while to observe the economic trend.
Among the 70 economists participating in this survey, about 37%-53% predict that the European Central Bank will not take any monetary policy action at its meeting on September 14, with the proportion being 47% in last month's survey where more economists leaned towards the bank maintaining its current monetary policy. This means the ECB is expected to keep the deposit rate at 3.75%, consistent with market expectations. According to the survey, 53% of the respondents expect the deposit rate to rise to 4.00% this year.
Despite the current market belief of a 60% chance of the central bank pausing rate hikes in September, there is divergence over the rate level by year-end, with some market participants believing there is a slightly higher than 50% probability of the deposit rate reaching 4.00 at that time.
Bas van Geffen, a senior macro strategy analyst at Rabobank, noted: "The baseline shows that the European Central Bank will remain unchanged for a long period. That is, during the forecast period, they expect the bank will not make significant adjustments to its existing monetary policy." He also mentioned a potential risk factor, the "inflation setback." However, Geffen pointed out a possible increase in the deposit rate by the end of the year.
Data is very important for ECB decision-making, especially in determining whether to hike rates in the future. The trend and performance of the data will to some extent decide whether the bank will take action to adjust its monetary policy. As the European Central Bank still relies on data, if the data do not convince the committee that inflation is gradually moving towards the target, then the risk of hiking rates again in September and October is the greatest.
