Deutsche Bank Expects ECB to Raise Rates in September and Again by 25 Basis Points in December

Deutsche Bank anticipates that the European Central Bank (ECB) will raise interest rates in September and then increase them by an additional 25 basis points in December to address the ongoing energy risks affecting the inflation outlook. The current deposit facility rate stands at 2.25%, and the bank's research department previously expected it to peak at 2.5%, but now believes this assumption is under challenge. Despite the ongoing inflationary risks stemming from the conflict in Iran, the labor market in the Eurozone remains weak, with little evidence to suggest widespread price pressures are driving wage growth. The bank considers 2.75% to be a more likely terminal rate, but geopolitical tensions easing and slowing growth may keep the rate cap at 2.5%. Without broader inflationary pressures, there is insufficient basis for a breakthrough above 3%. The ECB is scheduled to announce its interest rate decision on September 10, with the market widely expecting a rate hike.

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