Rabobank’s Global Strategist Michael Every argues that with war risks in the Middle East, the European Central Bank (ECB) faces greater dangers from inaction than from tightening too far. Every expects the ECB to revise inflation forecasts higher, acknowledge weaker growth, and still deliver a 25bp rate hike to take the deposit rate to 2.25%, with another move likely in September.

War risk keeps ECB on guard

"Today has the ECB meeting, where with war in the Middle East we see the risks of inaction now greater than the risks of potentially hiking in error."

"Our own inflation forecasts suggest the ECB will revise its own inflation projections up significantly, while the growth may be weaker than its staff projected in March."

"We therefore think the ECB will hike by 25bp, taking the deposit rate to 2.25% and have pencilled in one additional hike, which we believe is now most likely in September."

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