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Morgan Stanley, others now forecast 4% peak for key ECB rate
Global Banking & Finance Review®
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By Sudip Kar-Gupta
(Reuters) -Morgan Stanley and two other investment banks have revised their forecasts for the European Central Bank’s terminal rate – the level at which its key interest rate will peak – to 4% as inflationary pressures weigh.
Data this week showed a surprise surge in underlying inflation across the 20-nation euro zone.
The revisions also come on the heels of remarks by ECB governing council member and Belgian national bank governor Pierre Wunsch on Friday that the ECB could consider raising its key interest rate to as high as 4% if underlying inflation remains persistently high.
BNP Paribas and Barclays joined Morgan Stanley in the upward revisions. Morgan Stanley and BNP Paribas had previously seen the terminal rate at 3.25%. Barclays on Feb.17 had raised its forecast to 3.5%.
The ECB has raised rates to 2.5% from a record low of -0.5% in July 2022.
Barclays said in a note to clients that it expects 50 basis point rate increases in March and May, and 25 basis point rises in June and July.
JP Morgan this week raised its forecast for the terminal rate to 3.75% from 3.50%.
(Reporting by Sudip Kar-Gupta in Paris, Alun John and Sam Indyk in London; Editing by Edwina Gibbs)
The European Central Bank (ECB) is the central bank for the eurozone, responsible for managing the euro and implementing monetary policy to maintain price stability within the region.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the amount borrowed or saved, typically set by central banks.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is often measured by the Consumer Price Index (CPI).
The terminal rate is the peak level of interest rates that a central bank aims to reach during a monetary policy cycle, often influenced by economic conditions.
A basis point is a unit of measurement equal to one-hundredth of a percentage point, commonly used in finance to describe changes in interest rates or other percentages.
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