Deutsche Bank Sees ECB Rates Hitting 2.75% Amid Energy Risks

Deutsche Bank has revised its expectations for European Central Bank (ECB) interest rates in light of ongoing energy-related risks. The bank now predicts that the ECB will raise its deposit facility rate to 2.75%, a more significant increase than initially forecasted.

The previous projection had the rate peaking at 2.5% due to assumptions that the energy price shock would be temporary and economic growth would weaken. However, these expectations are being challenged as prolonged conflict in Iran poses additional inflationary risks.

Deutsche Bank notes that despite a relatively soft euro zone labor market, there is limited evidence of wage growth translating into broader price pressures. This suggests that rates could peak at 2.75% if geopolitical tensions ease more quickly than expected or economic growth weakens.