Goldman Sachs raised its forecast for the peak interest rate of the European Central Bank (ECB) for the second time in weeks, saying it now expects a 50 basis point hike at the ECB's May meeting. That would take the ECB's terminal rate to 3.75% by June, Goldman Sachs said.
It is understood that Goldman Sachs had previously expected the ECB to raise interest rates by 25 basis points in May, reaching a peak rate of 3.5% in June. Money markets, on the other hand, expect ECB rates to peak at around 3.85% in December 2023.
In fact, ECB has raised interest rates by 300 basis points since last July and promised to raise interest rates by another 50 basis points in March 2023, in the hope that more expensive funds will be enough to curb demand and bring down the inflation rate from the level still higher than 8%.
However, Goldman Sachs said recent data had fuelled its more hawkish forecasts, including unexpected rises in Spanish and French inflation data, as well as recent comments from ECB chief economist Philip Lane, who said the ECB would not end the rake hike ahead of schedule.
It is worth mentioning that Goldman Sachs economists said in a report on February 28 that while the ECB is still likely to cut interest rates by 25 basis points at the May meeting, they no longer regard this as a baseline and will insist on their view that the ECB Governing Council will maintain the top rate until the fourth quarter of 2024.