European Central Bank To Go Large With 75 Bps Move On Thursday - Reuters Poll
The European Central Bank is expected to make a jumbo 75 basis point refinancing rate increase on Thursday, according to a slim majority of economists polled by Reuters, as it battles to contain inflation running at more than four times its target.
That is a change from a Friday poll which showed the choice between 50 and 75 basis points on a knife's edge. But the latest consensus shows the ECB's key rate rising to 1.25% this week.
Thirty-four of 67 economists now expect the bigger move on Thursday, compared to 30 of 61 last week. Twenty-nine said the Bank would go for 50 basis points, while four expected the ECB to only add 25 basis points to its key rate.
Euro zone market makers were more convinced about the bigger move, with 19 of the 29 who participated saying 75 basis points and only nine expecting 50. One said 25 basis points.
The updated survey shows that while markets are pricing in about an 80% chance of the bigger move, the decision for policymakers is much more nuanced.
"In all honesty there is a case for an even bigger move than a 75 basis point hike if you look at where policy rates are, but I think that might be a bit much for policymakers," said Jack Allen-Reynolds at Capital Economics.
"The talk is if it is 50 or 75 and it wouldn't be a big shock if it was 50, but I think given where inflation is and where we are starting off, with policy rates so low, there is a very strong case for a very big rate hike."
Having initially said it would move very gradually, the ECB only just raised rates for the first time in this cycle a few months ago by half a point. Waiting so long has made it have to consider an even bigger move just as the economy enters a downturn.
The refi rate is expected to rise to 2.00% next quarter. The median forecast points to it remaining steady there through 2023, but there is a wide range of views.
Friday's poll gave a 60% chance of a recession within a year and, adding to the region's economic and inflationary woes, Russia has closed its main gas supply pipeline to Europe indefinitely, particularly damaging to heavily industrialised Germany, Europe's largest economy.
Inflation is forecast to peak at an average 9.0% this quarter and next before gradually declining, but wasn't seen at the ECB's goal across the forecast horizon through next year.
Despite those changing expectations for a bigger move the euro has had a torrid time, slipping below $0.99 on Monday for the first time since late 2002 as the region's energy crisis deepens.
The weakening in the currency, down around 13% this year, is highly likely to add to record high inflation, and analysts are not convinced even the supersized move would do much to stop the rout.
© Copyright Thomson Reuters 2024. All rights reserved.