BENGALURU- The European Central Bank is expected to raise the deposit rate for the first time in over a decade in July and bring it out of negative territory at its following meeting in September, despite a 30 percent chance of recession within a year, a Reuters poll of economists showed.
With inflation hitting a multi-decade high of 7.5 percent in April and almost every other major central bank having already raised interest rates, ECB President Christine Lagarde backed calls for an early rate hike by policymakers last week.
The bank is now expected to end its bond purchases program in July and follow that with a 25 basis-point deposit rate hike a few weeks later, according to a majority of economists polled from May 10 to 16.
Until recently, forecasters were expecting the ECB to wait until the final quarter of the year to raise the deposit rate, currently at -0.50 percent.
Of the 46 of 48 economists who expect the deposit rate to rise in the third quarter, 26 said rates would rise by 50 basis points by the end of the period, implying quarter-point moves at both the July and September meetings.
Another 18 respondents said the deposit rate would only rise 25 basis points in Q3 and two said it would only climb 10 basis points to -0.40 percent by the end of the quarter.
An even clearer majority expect rates to no longer be negative by the end of the year.
About 90 percent of economists, or 43 of 48, said the deposit rate would be 0 percent or higher by then, with 44 percent, or 21 of 48, saying it would be at 0.25 percent by then and 8 percent, or 4 of 48, saying it would be at 0.50 percent.
“There is widespread support for ending negative interest rate policy at the ECB, but they will take a very cautious approach to policy normalization, in light of substantial macro uncertainty and concerns about a growth slowdown,” said Jens Eisenschmidt, chief European economist at Morgan Stanley.
