Deutsche Bank Lowers ECB Rate Hike Expectations Amid Energy Risks

Deutsche Bank has made an adjustment to its forecast for European Central Bank (ECB) interest rate hikes due to ongoing energy risks. Initially, the bank predicted a peak rate of 2.5%, slightly higher than the current ECB deposit rate of 2.25%. This prediction was based on assumptions that the energy price shock would be temporary and economic growth weak.

However, these assumptions have been challenged by geopolitical tensions and soft labor market conditions in the eurozone. The bank now expects a rate hike of only 25 basis points in December, following an anticipated increase in September. This revised forecast sees 2.75% as a more plausible terminal rate unless there is a decrease in geopolitical tensions.

The adjustment reflects increasing expectations among brokerages for continued ECB tightening due to persistent growth and enduring energy risks. A rate move above 3% is considered unjustified without broader inflation pressures, according to Deutsche Bank's revised forecast.