Deutsche Bank, Credit Suisse expect another 75 bps ECB rate hike in Oct

Some big banks were ramping up on Friday expectations for another 75 basis point rate hike from the European Central Bank in October, a day after the central bank delivered a supersized interest-rate increase to tame inflation.

The ECB raised its key rates by an unprecedented 75 basis points on Thursday and promised further hikes, prioritizing the fight against inflation even as the bloc is likely heading towards a winter recession and gas rationing.

“It is likely to be another close call in October and we have shifted our view to expect another 75bp hike (previously: 50bp),” Deutsche Bank (ETR:DBKGn) analysts said in a note.

They noted guidance from ECB chief Christine Lagarde that rates are “far away” from levels appropriate for getting inflation back to target in a timely fashion and that hikes should be anticipated at the “next several meetings.”

“This underscores the ECB’s insensitivity to the growth headwinds and laser focus on bringing inflation down,” the Deutsche note said.

Credit Suisse (SIX:CSGN) on Friday also raised its ECB rate-hike forecast, noting the ECB’s language pointed to more aggressive tightening ahead.

It said it now expected a 75 bps rate hike in October, versus a forecast for a 50 bps move earlier, and lifted its forecast for the ECB’s terminal rate to reach 2.5% from a previous estimate of 2%.

Citi meanwhile said it continued to expect a 75 bps ECB hike in October and a 50bp hike to 2% in December before the weak economy stops further hikes.

Money markets were on Friday fully pricing in a 50 bps rate hike in October and implied a roughly 25% chance of a more aggressive 75 bps move.

Still, anticipation of more hawkish stance from the ECB appeared to be supporting the euro, which was trading back above $1 on Friday.