European Central Bank: Clients see higher peak and later cuts – Deutsche Bank

Deutsche Bank’s Mark Wall and Michael Kirker report that survey respondents expect the European Central Bank (ECB) to continue hiking, with a strong bias toward another move in September and a terminal rate between 2.50% and 3.00%. Views on the timing of the next cutting cycle are spread from Q2 2027 to 2028 or later, and concerns about overtightening have eased since June.

Survey shows divided terminal rate views

"We revised up our own expectations for another hike in December, taking the ECB to a terminal rate of 2.75%."

"Terminal rate – Respondents are divided on how far the ECB will go in this hiking cycle. 31% see 2.50% as the terminal rate, 37% see 2.75%, and 26% see 3.00%. The share expecting the ECB to hike too much has also declined from 71% in June to 56% in this survey."

"Current market pricing implies that the ECB should hike to around 3% by the middle of next year. Respondents to our survey are divided as to how far the ECB will go with this hiking cycle. Views on where the terminal rate will be are fairly evenly split across 2.50% (31%), 2.75% (37%) and 3.00% (26%)."

"There is also uncertainty about when the next rate cutting cycle will begin. Views are fairly evenly divided across Q2 2027 to Q4 2027 (20%-26%), with 23% expecting the cutting cycle to begin in 2028 or later."

"A little over half (56%) of respondents think that if the ECB was to make a policy mistake, it would be that the ECB hikes policy rates too much. This share is down from 71% in our June survey. The share who think the ECB won't hike enough has increased from 13% to 22%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)