Goldman, Deutsche Bank See ECB Hiking as Soon as September

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European Central Bank watchers from Goldman Sachs Group Inc. to Deutsche Bank AG are predicting interest-rate increases will begin as soon as September following President Christine Lagarde's hawkish pivot.

Those are among the most aggressive calls among a flood of new forecasts in the wake of the ECB's surprise signal on Thursday that it will abandon its dovish stance on soaring inflation -- an approach that's become increasing at odds with global peers.

Economists at both banks now see quarter-point hikes in September and December, bringing the deposit rate to zero for the first time since 2014. It currently stands at -0.5, one of the world's lowest. The ECB last raised rates in 2011.

Such a timetable would mean an even sooner end to bond purchases than currently planned, given the ECB's stated intention to first cease that stimulus measure. Goldman and Deutsche Bank analysts both anticipate debt-buying will end in June. Commerzbank, which has the same 2022 rate forecast, sees an end to purchases at the start of September.

The shift in views follows Lagarde's comments to reporters where she pointedly refused to rule out a rate hike this year after months of doing just that in defiance of investor bets. Policy makers privately see a shift in formal guidance materializing as soon as next month, when they'll also reassess their bond-buying. 

According to Lagarde, officials were concerned “across the board” after data earlier this week showed another unexpected record reading in inflation. She spoke shortly after the Bank of England delivered a quarter-point rate increase that would have been even bigger if Governor Andrew Bailey hadn't opposed it.

Governing Council member Madis Muller said Friday that the ECB may review how quickly it ends bond-buying and is ready to adjust its current plans if necessary. 

What Bloomberg Economics Says...

“Bloomberg Economics has brought forward its forecast for an interest rate increase by six months to December 2022. The Governing Council seems poised to change its messaging significantly at the March meeting.”

--David Powell and Maeva Cousin. For the full report, click here

While multiple economists are changing their projections after Lagarde's remarks, some still reckon the ECB will adopt a much more gradual approach. For example, Holger Schmieding at Berenberg brought forward his prediction for the first rate increase by three months to March 2023. 

ABN Amro economists have yet to be convinced that even that outcome will come to pass. They predict no change at all in rates through the ECB's forecast horizon, which currently runs until the end of 2024. 

“Although the chances of a rate hike this year have clearly gone up significantly, we are not changing our base case for now,” Nick Kounis and Aline Schuiling, both in Amsterdam at ABN Amro, said in a report to clients. “It is difficult for us to see the case to raise interest rates in the face of a supply-side shock when we are seeing few signs of second-round effects.”

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