BofA sees ECB hiking all three policy rates by 25 bps next week

BofA Global Research said on Friday it expects the European Central Bank (ECB) to hike all three policy rates by 25 basis points at its Sept. 14 meeting, citing a weaker growth outlook and no clear evidence of a peak in core inflation.

The brokerage expects “very little” forward outlook for the following meetings but said the bias would be towards pausing and not cutting rates.

While convictions on the hike next week are “not strong”, in the absence of large surprises, if the ECB does not hike in September, “July would be the last hike of this cycle”, BofA Global Research wrote in a note.

“If September inflation print challenges our disinflation view, we would likely delay our call for the first cut,” said economists at BofA Global Research.

The brokerage expects the first cut by ECB in June 2024, and one cut per quarter throughout 2024 and 2025.

Consumer expectations for euro zone inflation in the coming years edged up, a new ECB survey showed on Tuesday, likely adding to worries that the decline in price growth could stall above the bank’s target.

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