All eyes on ECB decision this week

The European Central Bank is preparing to announce its interest rate decision amid increasing uncertainty in global financial markets. The bank is expected to continue with a 50 basis point rate hike this week. While disagreements among ECB officials regarding the pace of interest rate hikes are increasing, attention has turned to the ECB decision to be made this week. In addition to disagreements among bank officials, the announcement of the bankruptcy of the US-based SVB has emerged as a new uncertainty. The bank is expected to raise interest rates by 50 basis points at its meeting on Thursday this week due to high core inflation. Decrease in expectations Due to the uncertainty caused by the SVB bankruptcy, final interest rate expectations in money markets have also decreased. The deposit rate, currently at 2.5 percent, is expected to rise to 3.50 percent by October. The previous estimate was 4.20 percent. While Barclays and Bank of America expect the final interest rate to be 4 percent, HSBC and ING's final interest rate estimate is 3.5 percent. Robert Holzmann, one of the ECB’s most hawkish officials, advocates a 50 basis point rate hike at every meeting until July. The deposit rate is expected to rise to 4.5% as a result. “After what happened this week, the ECB’s road map will look for signals for May. Two months is a long time and we will see two more inflation data sets by then,” said Karsten Junius, senior economist at Bank J Safra Sarasin. “Hawkish officials will want to signal 50 basis points in May as well, and we expect President Christine Lagarde to emphasize that interest rate hikes should continue,” said David Powell and Maeva Cousin, economists at Bloomberg Economics. “The outlook could get complicated if the hawkish ECB members do not declare their commitment to a 50 basis point hike at the next meeting,” said Jussi Hiljanen, director of SEB’s European unit.