Belgium, (Brussels Morning Newspaper) Economists who took part in a Reuters poll expect the European Central Bank (ECB) to up rates at the meeting slated for 27 October.
They pointed out that inflation in the eurozone is five times higher than the ECB’s target and predicted a rate increase of 75 basis points later this month, the paper reported on Wednesday.
Inflation in the eurozone and other parts of the world is largely driven by rising energy prices and supply chain disruptions caused by measures aimed at curbing the spread of coronavirus, and exacerbated by the effects of the war in Ukraine.
Polled economists reminded that ECB’s target inflation is at 2%, in contrast with 10% measured in the eurozone in September, predicting that prices will grow 9.6% this month and gradually drop towards ECB’s target. They expect eurozone inflation to reach the target in late 2024.
Brian Martin, head of global economics at Australia and New Zealand Banking Group (ANZ), noted “inflation is far too high… rapid rate rises are needed.”
However, he pointed out that the ECB also has to balance bond spreads and added that “more than 75 bps seems unlikely.”
Of 34 respondents, nearly two thirds expect cost of living in the eurozone to increase or increase significantly, with 12 expecting it to decrease in the coming period.
Winter is coming
Luca Mezzomo, head of macroeconomic analysis at Italian banking group Intesa Sanpaolo, predicted that “the worst impact of the energy crisis on the household sector will develop in Q4 2022 and Q1 2023, when the demand for gas is seasonally higher.”
The majority of economists who took part in the poll expect the ECB to increase the deposit rate to 1.5% and the refinancing rate to 2% next week.
Of 36 respondents to an additional question, seven recommended a deposit rate increase of 50 basis points, 27 recommended 75 bps and two recommended 100 bps.The ECB moved its deposit rate to zero with a 50-point increase in July this year, lifting it from the negative territory for the first time since 2014. The bank followed up the hike with an additional increase of 75 basis points in September.
