Recent Reuters polls suggest that the European Central Bank may not raise its benchmark interest rate until Q4 (the last quarter) of the year. The poll’s author details that after the conflict in Ukraine, “fewer economists” predict the ECB will raise the benchmark bank rate earlier. Moreover, a number of financial institutions worldwide are betting on the Federal Reserve’s rate hike time frame, and how high rates will jump this year.
Economists Place Bets on European Central Bank Rate Increases During the Conflict in Ukraine
While Ukraine’s conflict is still ongoing, analysts and economists debate whether the central banks will raise their interest rates in 2019. Economists reported that the war has been over for two weeks. said it’s possible specific central banks may not raise rates or taper large asset purchases while the war persists. Thomson Reuters’ international news agency Reuters released a poll suggesting that the European Central Bank (ECB), will not raise rates before Q4.
Authors Swathi Nair and Jonathan Cable say the consensus stems from a “slight majority of forecasters.” Despite rising inflation in Europe, the poll’s findings highlight that 27 of 45 polled participants agreed that the ECB would wait until the last months of 2022. Reuters published the latest poll on March 1-4 while news agencies also ran it last month. After the incident in Ukraine, “fewer economists” are forecasting the ECB to raise rates sooner.
“Only six economists expected the first hike to come sooner, in the third quarter, down from 16 in a poll last month,” the study details. Speculations about whether or not the ECB will hike interest rates have intensified. In a client note, economists from Rabobank said the war should not change the ECB’s goals. “The war hasn’t really changed the difficult combination of inflation and growth risks, it has only exacerbated it,” Rabobank economists told Reuters. The economists’ client note added:
Therefore, logically, it should not fundamentally change the ECB’s plans to cautiously and gradually withdraw some accommodative policies.
Global Investment Banks Predict Fed’s Rate Hikes
In addition to discussions about the ECB possibly raising rates this year for the first time in a decade, the Federal Reserve’s possible rate hike is a hot topic as well. Although the U.S. Federal Reserve will likely raise its benchmark interest rate this month, the conflict in Ukraine could delay this decision. A number of international investment banks had predicted that there would be several rate increases this year before the European conflict.
In mid-February, Goldman Sachs Group Inc’s economists said they predicted seven quarter-point increases by the year’s end. Citi anticipates that the bank will add 150 basis points in 2022, while BNP Paribas expects six rate increases with an average of 150bps. Morgan Stanley’s prediction is the same as BNP Paribas and JPMorgan thinks the Fed will go as high as 175 bps. HSBC estimates that the Fed will increase its interest rate by 50 bps in this month and four additional hikes during this fiscal year.
Meanwhile, with people predicting the Fed’s and the ECB’s decision to raise interest rates, the process of large-scale bond purchases stemming from both banks will reportedly end this month. According to the U.S. Federal Reserve, the bank plans to “purchase approximately $20 billion over the monthly period” that started on February 14 and will end on March 11. The ECB’s pandemic-related stimulus program leveraged 20 billion euros to purchase bonds and the buying is expected to halt this month.
How do you feel about the prediction by the ECB that it will delay raising rates until the fourth quarter? How do the investment banks view this year’s Federal Reserve rate increases? Comment below and let us know how you feel about the subject.
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