Goldman Sachs expects ECB to raise rates by 50 points at May meeting

GOLDMAN Sachs raised its estimate for a peak interest-rate hike by the European Central Bank (ECB) for the second time in as many weeks; it now expects rates to go up by 50 basis points (bps) at the central bank’s May meeting.

Such a move would take the central bank’s terminal rate to 3.75 per cent by June, the brokerage said. It earlier expected the ECB to hike rates by 25 bps in May, for a peak rate of 3.5 per cent by June.

Money markets expect the ECB rate to peak at around 3.85 per cent in December.

The central bank has raised rates by three percentage points since last July. It has promised another 50 bps increase in March, in the hope that more expensive funding will curtail demand enough to get price growth down from levels still above 8 per cent.

The brokerage’s more hawkish expectation was prompted by recent data, including an upward surprise in Spanish and French inflation numbers. It was also influenced by a recent commentary by ECB chief economist Philip Lane, who said that the central bank would not end rate hikes any sooner.

In a note on Tuesday (Feb 28), Goldman Sachs’ economists said: “While a step-down to 25 bps is still possible in May, we no longer view it as the baseline… and maintain our view that the (ECB’s) governing council will maintain the peak rate until the fourth quarter of 2024.” REUTERS