The Strategist

Analysts forecast ECB rates to remain unchanged

10/26/2023 - 03:19

Analysts and market players forecast that the European Central Bank will halt the most aggressive cycle of significant interest rate hikes in its history and won't alter them by the end of the meeting on Thursday, The Financial Times writes.

European Central Bank
European Central Bank
The regulator increased all three of the key rates by 25 basis points in September, for the eighth time in a row. As of right now, the base rate on loans is 4.5%, the rate on deposits is 4%, and the rate on marginal loans is 4.75%.

FT observes that despite this, the eurozone's inflation rate is still twice the goal level, and the ongoing conflict between Israel and Hamas is driving up energy prices even further. With these things in mind, Christine Lagarde, the head of the European Central Bank, is probably going to give the market a strong indication that rates will stay where they are for a while.

Pimco portfolio manager Konstantin Veit stated, "The ECB will reserve the option to raise rates further, but the bar for that to happen is set pretty high."

Meanwhile, expectations for a rate reduction in the near future are dissipating rapidly.

Even though the primary inflation indicator dropped to a two-year low of 4.3% in September, Lagarde nonetheless referred to inflationary pressures in the eurozone as "undesirably high" earlier in October. This month's inflation slowdown is anticipated to persist, although the data won't be available until after the ECB's October meeting.