ECB to advance further interest rise on Thursday

“ ANDwe hope that the European Central Bank will announce a second increase in the interest rate at its meeting on 10 September, raising the deposit rate to 2.5%,” says Allianz Global Investors (AllianzGI), Michael Krautzberger, Global Public Market Investment Director.

This upward review would put the deposit facility rate at 2.5%, the upper limit of the neutral zone.

Krautzberger estimates that the ECB raises GDP forecasts by 0.1 percentage points for this year (0.9%) and the next (1.3%), reflecting recent resilience and improvement in sentiment surveys against future prospects, while inflation is expected to fall to 2.8% (-0.2 percentage points) this year and reach 2.6% next year (more 0.3 percentage points).

AllianzGI’s manager does not, however, rule out a further increase before the end of the year.

“ We believe that another 25 basis points increase is likely in December,” he says, in the statement.

On the Ebury side, Analyst Roman Ziruk believes that this will be the last time the ECB will handle the master fees this year.

“ Currently, markets are anticipating another rise in December and a new one in March. We think he's very aggressive. The ECB’s chief economist, Philip Lane, pointed to 2.5% as the upper limit of the neutral zone, so a tightening above this month would push policy into restrictive ground,” says Ebury’s forecast.

In view of this forecast, September should mark the last rise in this cycle, although “of course, it depends very much on the evolution of the war in Iran”.

Cited by Europa Press, ING Research’s global director of macroeconomics, Carsten Brzeski, believes that the decision will be “an increase in interest rates by precaution.”.

“ With oil prices still high and the risk of a further drastic rise in gas prices rising, the majority of those responsible for the ECB’s monetary policy will find it difficult to see sufficient reasons for a further increase in rates,” he added.

The analyst also considered that going beyond 2.5% would be “shooting more firewood” in a scenario of problems for public finances and increasing interest on debt.

Hence, Carsten Brzeski said it was “hard to imagine that the ECB is willing to risk a recession to cope with what remains a typical case of supply crisis”.

The Governing Council of the ECB meets Wednesday and Thursday in Berlin to decide the future of monetary policy in the euro area.

At the July meeting, the Board of Governors unanimously maintained the governing fees, as expected by the market, after the previous monetary policy meeting on 11 June increased for the first time since 2023 the three steering rates by 0.25 percentage points to respond to the increase in global prices caused by the Middle East conflict.

On the occasion, President of the ECB, Christine Lagarde, added at the press conference that followed the meeting of the Board of Governors that in September the ECB would have more new data to make the decision on the principal fees and that, therefore, it would be possible for it to decide to increase them at the meeting that begins today.