Deutsche Bank Raises Eurozone Interest Rate Forecast Amid Energy Price Risks
Deutsche Bank has raised its forecast for the trajectory of interest rates in the Eurozone, anticipating that the European Central Bank (ECB) will hike rates by 25 basis points in December, in addition to the expected increase in September, as the risks of surging energy prices and their impact on inflation persist.
The bank had previously projected interest rates to peak at 2.5%, compared to the current deposit facility rate of 2.25%. These earlier forecasts were based on the assumption that the energy price shock would be transitory and that sluggish economic growth would limit the central bank's need for further monetary tightening.
However, in a note released on Friday, Deutsche Bank analysts stated that these assumptions have become less likely, given the ongoing conflict with Iran and the subsequent potential for added upward pressure on energy prices and inflation.
The bank now views 2.75% as the most likely terminal rate, though it noted that an easing of geopolitical tensions or a broader economic slowdown could still push the peak rate down to 2.5%.
Conversely, Deutsche Bank rules out interest rates surpassing the 3% mark unless there are clear indications that inflationary pressures are broadening more extensively across the wider economy.