As of 20 September 2023, the European Central Bank’s interest rate for main refinancing operations stands at 4.50%, the rate on the deposit facility stands at 4.00% and the rate on the marginal lending facility is at 4.75%. Photo: Shutterstock

As of 20 September 2023, the European Central Bank’s interest rate for main refinancing operations stands at 4.50%, the rate on the deposit facility stands at 4.00% and the rate on the marginal lending facility is at 4.75%. Photo: Shutterstock

Ahead of the European Central Bank’s policy-setting meeting on 26 October, analysts from ING, Monex and Pictet say they expect the ECB to maintain current interest rates.

At their September meeting, the governing council of the European Central Bank , bringing the interest rate for main refinancing operations to 4.50%, the rate on the deposit facility to 4.00% and the rate on the marginal lending facility to 4.75%.

In response to inflation, the . Economists from ING, Monex and Pictet this week published their expectations for the results of the central bank’s meeting, and all three expect that there will be no increase in interest rates.

“We expect the ECB’s governing council (GC) to maintain the current policy rates at this week’s monetary policy meeting (on 26 October),” said Nadia Gharbi, senior economist with Pictet Wealth Management, in a communiqué published on 23 October. “We also foresee the GC remaining open to further hikes if the inflation outlook worsens while stressing that it sees the present level of rates to be appropriate.”

“We expect the European Central Bank to pause this week after inflation slowed, rates spiked and new geopolitical risks emerged,” said an ING communiqué prepared by FX strategist Francesco Pesole, senior rates strategist Benjamin Schroeder and global head of macro Carsten Brzeski.

Looking ahead

The economists added that they expect the ECB to be at the end of its cycle of tightening monetary policy.

“We continue to believe that the ECB has concluded its cycle of rate hikes and that it will hold rates at the current level for the foreseeable future,” said Pictet’s Gharbi.

“With the ECB now declaring a likely end to their tightening cycle and Chinese data showing signs of improvement, there have been some questions as to whether this would lead to a bottoming in eurozone activity,” said Simon Harvey, head of FX analysis at Monex Europe, in its WeekAhead publication released on 23 October. “While we agree that this will ultimately play out, we think the lagged transmission of previous actions, the effective tightening of financial conditions since September’s decision, and the recent uptick in oil prices are likely to maintain pressure on growth conditions, means an improvement is unlikely to become visible until early next year.”

“The ECB, like other central banks, is in a position where its rate cycle is probably over,” said ING. “But it’s still in its interest, barring a substantial dovish shift in the GC equilibrium, to keep bond yields elevated, so allowing the additional tightening to put further pressure on prices. That requires a hawkish tone to be reiterated at this meeting.”

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