European Central Bank: Inflation-driven hike prospects – DBS

DBS Group Research expects the European Central Bank (ECB) to raise the deposit facility rate to 2.50%, citing a resilient inflation-growth mix in the Eurozone. The report notes headline inflation has moved further above target, while core pressures remain contained for now. Analysts highlight risks of broader wage and services inflation and point to higher European bond yields reflecting investor concerns.

ECB seen tightening as inflation rises

"Inflation jumped to 3.3% yoy in August from 2.9% month before, moving further from the 2% target, primarily driven by 14.3% increase in the energy component."

"Eurozone’s inflation-growth mix is likely to convince policymakers that the economy can withstand further monetary tightening."

"However, from the ECB's perspective, the risk is that sustained increase in inflation eventually broadens into wages, services and inflation expectations, preferring to act pre-emptively."

"Meanwhile, sell off in the global bonds has also swept European rates higher, suggesting investors are growing wary of wide deficits in light of geopolitical tensions, higher defence expenditure and other prevailing uncertainties."

"The ECB Governing Council is expected to raise the benchmark deposit facility rate by 25bp to 2.5%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)