ECB to soon start swift normalisation, putting a floor under euro depreciation – ANZ

The euro area is facing challenges from the protracted war in Ukraine and record-high inflation. Economists at ANZ Bank are now expecting the European Central Bank (ECB) to deliver a July rate hike. 

ECB hastens towards lift-off

“We have raised our average HICP forecast for the euroarea this year to 7.8% from 5.0%, and for 2023 to 4.5% from 2.3% and for 2024at 2.4%.”

“The risks of a manufacturing recession are significant, but in aggregate we expect the economy will avoid this, given falling unemployment and service sector strength. The supply of Russian gas is a major uncertainty.”

“We maintain our expectation for lift-off in Q3 and, given our HICP revision, are now biased towards a July hike. We expect that the ECB will raise rates in increments of 25bp and maintain the 50bp corridor to the MRO.”

“We think that the start of normalisation could help to put a floor under euro depreciation, which is adding to HICP pressures given already surging import costs.”