The market assumes that the ECB will raise the price of money again

The Governing Council of the European Central Bank (ECB) is expected to raise the amount today Interest rates by 25 basis points, thereby raising it the price of money in the eurozone to the maximum since the summer of 2008, according to the consensus of analysts consulted by Europa Press, who also predict that the institution will indicate the need for an additional increase, without clarifying whether it will end the cycle in July or September.

In fact, the vice-president of the ECB, Luis de Guindos, pointed out at the beginning of June that the current path interest rate increases is approaching the “final stretch”, emphasizing that an increase of 25 basis points, as at the May meeting of the Governing Council, is the “new norm”.

“There is a perception that much of the rate hike path has been implemented and that it remains the last part, the last part,” the Spanish economist said.

In this sense, Franck Dixmier, global investment director of Fixed Income at Allianz Global Investors, points out that, after a 375 basis point rate hike from July 2022, the ECB is “fine-tuning its monetary policy” when the eurozone economy has slowed after entering a technical recession during winter, while inflationary pressures are still persistent.

Therefore, although year-on-year price growth slowed in May, with headline inflation at 6.1% compared to 7% in April, the level of the key rate was still “too high for the ECB to lower its guard”, with a reading of 5.3%, compared to 5.6% in the previous month.

“Consequently, we expect the ECB to continue raising rates, with a 25 basis point increase at the June meeting, likely followed by another 25 basis points in July,” he says.

This is expressed by Konstantin Veit, portfolio manager at PIMCO, for whom, despite the fact that Core inflation surprised by the fall in May, inflation still too high and the labor market extremely tight, the ECB is likely to raise interest rates by 25 basis points today and confirm the end of the reinvestment of its asset purchase program (APP).

“We expect the ECB to refrain from giving firm guidance after June,” said Veit, who the Governing Council will limit itself to signaling that it plans to continue raising interest rates, adding that market expectations point to cumulative increases of 30 basis points. in the next two meetings and rate cuts starting in the first quarter of 2024.

Likewise, from Bank of America, its chief economist for Europe, Rubén Segura-Cayuela, is also betting on growth of 25 points, accompanied by “a clear message that there is still room to cover, without a precise signal whether this means another or “We still expect the ECB to raise the interest rate to 3.75 percent at the July meeting, with the risk of it reaching 4 percent in September,” predicts the expert, for whom the rate cut “should wait until June 2024.”

For his part, David Kohl, chief economist at Julius Baer, ​​agrees that he expects a 25 basis point rise “across all ECB interest rates”, although he points out that inflation in the eurozone has peaked while growth has slowed. weakens, and credit activity slows, “creating the risk of excessive tightening with further rate increases.”

In this sense, he points out the importance of knowing the ECB’s updated macroeconomic projections, which will also be published this Thursday, given that they could show upward corrections of inflation forecasts and downward growth forecasts, especially for 2024.

In this way, Martin Wolburg, senior economist at Generali Investments, admits that “the situation remains difficult” for the ECB, although high core inflation and the risk of secondary effects “justify a restrictive policy”.

In this regard, Gilles Moëc, chief economist at AXA Investment Managers, points out that despite signs that the European economy is slowing, there is still too much momentum in the labor market for the ECB to feel relaxed about risks. wage-driven inflation. However, the expert believes that July, and not September, will be the peak of official interest rates for the ECB.

If the eighth consecutive increase in the price of money by the ECB is confirmed, the reference rate for the ECB’s refinancing operations would be 4%, the highest level since July 2008, while the rate applied to border deposits would reach 3.5% and it loans 4.25%.