J.P. Morgan and BNP Paribas forecast an ECB rate hike in December
J.P. Morgan and BNP Paribas expect the European Central Bank to raise interest rates again by 25 basis points in December. Both institutions revised their forecasts due to persistent inflation risks and high energy prices, Asharq Al-Awsat reports.
Forecast revision
Previously, both financial institutions believed that the ECB's monetary tightening cycle would end without a rate hike in December. The updated estimates suggest that borrowing costs in the eurozone will remain high for longer than previously expected.
BNP Paribas said that the duration of the energy shock and the resilience of the economy increase the likelihood of secondary inflationary effects. The bank also forecasts a 25-basis-point rate hike at the ECB meeting on September 10, while not ruling out further steps if evidence of such effects emerges.
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Market expectations
According to LSEG, the market had almost fully priced in a 25-basis-point ECB rate hike at the September 10 meeting: the probability of such a decision was estimated at 99.2%.
Oil prices declined but remained above $95 per barrel. At the same time, eurozone bond yields moved away from multi-year highs after recent pressure on markets caused by rising energy prices amid the escalation of the conflict in Iran.
According to Reuters, J.P. Morgan believes that more persistent price pressure on energy commodities, stable economic growth, persistent core inflation, and the ECB's assessment of an increase in the neutral rate could provide grounds for another rate hike in December.
