by Prerana Bhat

BANGALORE (Reuters) – The European Central Bank (ECB) will hike interest rates by a quarter point in June and July, before pausing for the rest of the year, according to a large majority of economists polled. by Reuters.

To slow down the economy and curb runaway inflation, the ECB has raised its rates by 375 basis points since July 2022. As a result, Germany and the euro zone as a whole tipped into recession at the start of the year.

Nevertheless, both economies are expected to recover and the euro zone will grow by 0.2% in each quarter until the end of the year, according to the Reuters survey. Pressures on prices and inflation expectations have eased, but not enough to immediately dissuade the ECB from continuing its cycle of monetary tightening.

Christine Lagarde, the president of the institute of emission, declared Monday that there was no “tangible proof” that a peak had been reached in core inflation.

For the 59 economists polled by Reuters, the ECB should raise its deposit rate from 3.25% to 3.5% on June 15. About three-quarters of economists (43 out of 59) forecast a further 25 basis point rate hike in July.

“A 25 basis point rate hike looks set for next week’s meeting,” said Carsten Brzeski, global head of macroeconomics at ING.

“Macroeconomic developments since the May meeting clearly have more to offer ECB ‘doves’ than ECB ‘hawks’… However, the ECB is fully determined at this time to err on the side of caution when it comes to rising rates,” he added.

THE DEPOSIT RATE SEEN AT 3.75% AT THE END OF 2023

A majority (38 out of 59) of respondents expect the ECB deposit rate to remain at 3.75% until the end of 2023 and another 17 experts expect a rate of 3.50% or less by then. the end of the year. Four people estimate that it could be increased to 4%, due to the insufficient slowdown in inflation.

The latest figures in this area showed a consumer price index up 6.1% over one year, more than three times the ECB’s target, and in the “core” version up 5.3% .

According to the survey, inflation should remain above 2% at least until 2025. It would stand at 5.5% this year and 2.5% in 2024, according to the median of the responses of the economists.

Core inflation, which excludes food and energy, should moderate slightly to reach 4.9% in the next quarter and 3.9% over the last three months of the year.

“Core inflation is slowly peaking this summer and we are concerned that a tight labor market…persistent wage inflation implies core inflation likely to be higher than equal or below target,” wrote Mark Wall, chief economist at Deutsche Bank.

“The ECB may not be convinced in September that inflation is falling enough to take a break,” he added.

The Reuters poll for the US Federal Reserve, on the other hand, shows that it should opt for a break at the FOMC meeting on Wednesday.

However, more than a third of respondents expect at least one more increase this year, due to the resilience of the economy.

(Sruthi Shankar in Bangalore, Laetitia Volga, editing by Kate Entringer)

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