by Prerana Bhat

(Reuters) – The European Central Bank will raise interest rates by a quarter point at each of its next two meetings, a Reuters survey of economists showed on Tuesday.

Several ECB officials have reiterated that the bank may need to raise rates for longer than expected, until core inflation shows significant signs of slowing.

According to the 62 economists surveyed between May 10 and 15, the institution should raise its deposit rate by an additional 25 basis points on June 15, to bring it to 3.50%.

Although 20 of them expect the ECB to end its tightening cycle afterwards, 42 of them expect a deposit rate of 3.75% in July. Among them, five economists expect a rate of 4% in September.

The median of economists’ responses indicates that rates will remain unchanged at 3.75% at least until next April. Only one person predicts a 25 basis point rate cut this year.

“The message from several ECB speakers (…) has clearly been on the ‘hawkish’ side since the (May 4) meeting, and consumer inflation expectations have risen according to their survey,” noted Ruben Segura. – Cayuela, economist at Bank of America.

“Unless something happens, we can only reiterate our view that, despite the cracks appearing in the outlook, two more 25 basis point hikes are a minimum.”

UNDERLYING INFLATION

While eurozone price inflation picked up slightly in April to 7% year on year, inflation is not expected to return to the ECB’s 2% target until at least 2025. base is expected to average 5.5%, 5.0% and 3.9% in the second, third and fourth quarters, respectively, and then 2.7% in 2024.

“Given its importance to the ECB’s monetary policy stance, the path of underlying inflation is critical to the economic and financial outlook for the euro area,” said Ken Wattret of S&P Global Market Intelligence.

“The cycle of rate hikes could extend into the third quarter, given that core inflation is still high, the unemployment rate historically low and growth solid,” he added.

A recession seems unlikely – 40% chance within two years according to the median of the responses – which gives the ECB leeway to raise rates and see the lag effects of its previous increases.

The consensus is for growth of 0.7% this year, ahead of a rise of 1.0% in 2024, which is a minimal change from last month’s survey.

(Report Prerana Bhat; with Sarupya Ganguly, Laetitia Volga, editing by Kate Entringer)

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