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: Expectations on ECB liftoff brought forward by Goldman Sachs and Societe Generale

Economists at Goldman Sachs and Societe Generale have each raised their expectations on European Central Bank interest-rate hikes, ahead of next week’s meeting.

Goldman’s Sven Jari Stehn and Sören Radde say the surge in inflation to 7.5% will lead the ECB to tighten even as growth may deteriorate given the outbreak of war in Ukraine and the risks of a disruption in key Russian gas flows.

They say the ECB’s asset purchase program will end in July, and expect quarter-point hikes in both September and December, which would take the ECB’s main interest rate back to zero. They also expect three hikes in 2023, and then another two hikes in 2024 to take rates to 1.25%. “But we see risks towards a faster pace and a higher terminal rate, particularly if significant second-round effects emerge in inflation expectations and wage setting,” said the Goldman team.

Anatoli Annenkov of Societe Generale also has added one rate hike to his forecast, seeing quarter-point increases in September and December. “Although the amount of new data has been limited since the March meeting, the initial impression is that the euro area economy is showing promising resilience to the war in Ukraine and has certainly not fallen off a cliff (as in March 2020). This should steer ECB policymakers back to the troubling inflation data and the risk of unanchored inflation expectations,” he said.

Expectations are for the ECB to stand pat at the meeting. It’s not clear whether European Central Bank President Christine Lagarde will participate in the press conference, as she said she’s tested positive for COVID-19.

The yield on the 2-year German bund
TMBMKDE-02Y,
0.004%

was marginally in positive territory on Friday. The euro
EURUSD,
-0.06%

was trading below $1.09.

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