In September, the European Central Bank will halt its rate-hike cycle, which has lasted for almost a year. According to a Reuters survey of economists, this is what we may expect. Inflation has been picking up, so it's probable that the trend will continue through the end of the year.
The European Central Bank (ECB) has implemented a string of nine consecutive rate hikes ever since the beginning of July 2022. However, Christine Lagarde, the ECB president, has begun to hint at a possible halt, saying after the most recent increase of 25 basis points that she was not sure if the bank could go any further in that direction.
A decline in economic activity, most notably in Germany, the largest economy among the bloc's 20 member countries, did not help matters. Lagarde emphasized that further decisions will depend on incoming data and that the "decisive factor" will determine whether the September rate hike is halted or not.
A Reuters survey found that 53 percent of 70 economists anticipate no fresh rate action at the September 14 meeting, up from 47 percent the previous month. This is consistent with market predictions that the rate will remain unchanged at 3.75 percent.
The majority of economists (53%) believe that the deposit rate will be increased to 4.00% this year. Thirty-three of them predicted September, while only four predicted October or December.
However, market opinion sees the likelihood of a halt in September at around 60%, and the likelihood of reaching a rate of 4.00% by year's end at a little around 50%.
Last week's emergency data showed that core inflation in the euro area remained at 5.5% in July (excluding food and energy price volatility), while headline inflation dipped slightly to 5.3%, with the ECB's target being 2%.
Inflation at the core level is expected to average 5.0% this year and 2.9% in 2024, which is higher than the earlier forecast of 2.5% for next year.
The deposit rate would reach its highest level since the euro's 1999 adoption if the ECB follows consensus projections and raises the rate by 450 basis points in the current cycle.
The economy as a whole is feeling the effects of rising price pressures, which were first driven by the sharp increase in the cost of energy but have since spread throughout the economy and continue to exert pressure on consumer demand.
Economic growth in the euro area is expected to average 0.9% in 2024, with quarterly increases of 0.1% and 0.2%.
Slow economic expansion was a major factor in the European Central Bank's (ECB) decision a few months ago to halt its cyclical rate hike program, saying that they no longer were able to move on.
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