Deutsche Bank Revises ECB Rate Hike Predictions Amid Energy Risks

Deutsche Bank now anticipates the European Central Bank will raise interest rates by 25 basis points in both September and December, due to persistent energy risks affecting inflation. The bank had previously expected a peak at 2.5%, but now forecasts a terminal rate of 2.75% as economic assumptions are challenged.

Deutsche Bank has revised its forecasts and now expects the European Central Bank (ECB) to raise interest rates by 25 basis points in December, following an anticipated hike in September. This adjustment comes as continuing energy risks exert pressure on inflation predictions.

The bank's research division had initially predicted a peak rate of 2.5%, slightly higher than the current ECB deposit rate of 2.25%. These figures were based on assumptions that the energy price shock would be temporary and that economic growth would remain weak. However, these assumptions have been challenged amid geopolitical tensions and soft labor market conditions in the eurozone.

Deutsche Bank now sees 2.75% as a more plausible terminal rate unless geopolitical easing occurs, which might keep rates at 2.5%. Conversely, a rate move above 3% is considered unjustified without broader inflation pressures. This revised forecast reflects an increasing expectation among brokerages for continued ECB tightening, especially given that growth persists and energy risks endure.