All the major economists agree that the upcoming march meeting will see the ECB introduce a rate hike of 50 basis points. As a result, the interest rate in Europe will reach 3.35% during Q2 2023. However, many economists believe that there's a good chance that the central bank may increase the policy rate even beyond 3.35%.
According to Christine Lagarde, the central bank is ready to add 50 bps to its policy rate. And it appears that most economists are taking up the ECB president on her word. This means that the deposit rate in the EU will reach 3% after the March meeting.
Now that we know what's ahead in the March meeting, the next question is what's next after that... According to a poll of economists, an additional 25 bps rate hikes will be introduced in the next meetings.
As a result, the refinancing rate in the EU will reach 3.75% while the deposit rate will touch 3.25%! If we look around, the BoE and the US Fed have also reached the end of their rate hikes cycle. So based on that, it appears that the ECB will also follow the same route.
And according to one analyst working at the DWS Group, there's a good chance that the ECB will even cross the upper limit set by most economists. The reason for that can be found in the persistent inflation across Europe.
That's why most economists agree that the ECB will also raise the refinancing rate as soon as it is done with the deposit rate.
Based on this information, there's no doubt that rate hikes are coming in the March meeting. However, the May meeting will now be the key focus of the market players.
According to the Belgium National Bank's head, the rate hikes introduced by the ECB will exceed market expectations. For now, markets are forecasting a deposit rate of around 3.50% in the European region.