Goldman Sachs has revised its expectations for the European Central Bank (ECB), predicting that the central bank will raise interest rates three times this year, taking the terminal rate to 3.5%. This is up from the previous estimate of 3.25%.
In a note released on Monday, the brokerage stated that it is expecting the ECB to increase rates by 50 basis points in March and then by 25 basis points in May, with a final 25 basis-point hike in June.
This change in expectations by Goldman Sachs follows recent hawkish commentary from ECB board member Isabel Schnabel and French central bank chief Francois Villeroy de Galhau, who are both influential policymakers within the Governing Council.
The Governing Council, which is made up of 26 members, sets the ECB’s monetary policy. The council meets approximately every six weeks to discuss economic conditions and to decide on any changes to the central bank’s policy.
The recent hawkish commentary from Schnabel and Villeroy de Galhau suggests that the ECB may take a more aggressive approach to raising interest rates in order to curb inflation. Inflation has been a concern in the eurozone, with prices rising at their fastest pace in more than a decade.
Goldman Sachs is not the only financial institution to revise its expectations for the ECB. Markets are currently anticipating that ECB rates will peak at around 3.7% by the end of the summer, which is slightly higher than Goldman’s forecast.
However, there are some who are skeptical about the ECB’s ability to raise rates as aggressively as expected. Some economists believe that the ECB may not be able to raise rates as quickly as it wants to, given the potential risks to the economy.
A rapid increase in interest rates could hurt economic growth, especially in countries that are heavily indebted. It could also increase borrowing costs for businesses and consumers, which could in turn reduce spending and investment.
The ECB has been trying to strike a balance between supporting economic growth and controlling inflation. However, with inflation running higher than expected, the central bank may need to take more aggressive action to prevent it from spiraling out of control.
In conclusion, Goldman Sachs is now expecting the ECB to raise interest rates three times this year, with the terminal rate reaching 3.5%. This change in expectations follows hawkish commentary from ECB board member Isabel Schnabel and French central bank chief Francois Villeroy de Galhau. While some are skeptical about the ECB’s ability to raise rates as quickly as expected, it is clear that the central bank is becoming more concerned about inflation and is willing to take more aggressive action to combat it.