ECB Rate Hike: Financial Markets Price In an 80% Chance of a 0.75% Interest Rate Increase

As the markets continue to show notable volatility, economists expect the European Central Bank (ECB) to implement an aggressive 75 basis point rate hike on September 8. This is according to a poll by Reuters, as the financial institution races to get inflation under control. If the ECB does raise its rates by 75 basis points, the Eurozone would have an interest rate of 1.25% this week.

A Reuters Poll Show what Market Participants Expect from ECB

This is a telling increase from a recent poll, which had a split result between 50 and 75 basis points. In the recent Reuters poll, 34 of 67 economists expect a bigger move by the European financial institution on Thursday, compared to the 30 to 61 last week. 29 of the 67 said the bank would raise its rates by 50 basis points, while four argue that the ECB will raise its interest rate by only 25 basis points.

Meanwhile, European market makers seemed to be more confident of a bigger rate hike, with 19 of 29 participants opting for a 75 basis point rate hike and nine choosing 50 bps. Only one market maker said a 25 basis point rate hike was possible.

The revised poll shows that the markets are pricing in an 80% likelihood of a bigger rate hike. Commenting on the rate hike topic, Jack Allen-Reynolds of Capital Economics noted: “In all honesty, there is a case for an even bigger move than a 75 basis point hike if you look at where policy rates are, but I think that might be a bit much for policymakers.” He added:

“The talk is if it is 50 or 75 and it wouldn’t be a big shock if it was 50, but I think given where inflation is and where we are starting off, with policy rates so low, there is a very strong case for a very big rate hike.”