Reuters surveyed 60 economists during October 12-18, 2022 to find out their opinions about the future of interest rates in the EU
A fresh Reuters poll concluded that the European Central Bank (ECB) will opt for another 75 basis point increase to its deposit and refinancing rates when it meets on Oct. 27. Experts believe aggressive moves will be required to contain inflation running five times above the ECB target.
Whereas the European regulator targets inflation at 2.0%, last month it reached 10.0%. The European economy was still recovering from the coronavirus pandemic when Russia’s invasion of Ukraine further undermined it with skyrocketing energy prices.
The poll predicts inflation will peak at 9.6% this quarter, before gradually drifting down. However, it will reach the 2.0% target only by late 2024.
As winter approaches, forecasters are expecting the ECB to be more aggressive in tightening policy. Although economists acknowledge that rapid rate rises are required, a hike over 75bps seems unlikely.
At the same time, nearly 65% of 34 respondents believe the cost of living in the eurozone would worsen, probably significantly. Only 12 were optimistic enough to say it would improve. Much of the price pressure will come from energy costs which are not likely to abate until the end of the Russia-Ukraine war. The worst impact is predicted in Q4 2022 and Q1 2023 when the demand for gas is traditionally higher.