ABN AMRO's Senior Economist Bill Diviney anticipates that the European Central Bank (ECB) will implement pre-emptive interest rate hikes at its April and June Governing Council meetings, raising the deposit rate to 2.50% in response to inflation risks and to prevent the de-anchoring of inflation expectations [1]. Diviney expresses stronger conviction regarding the April hike, citing ongoing uncertainty related to the conflict, but notes that a pause in June is possible if the conflict ends and energy prices normalize, which would provide the Governing Council with greater clarity on the inflation outlook [1].
The policy tightening is intended to prevent second-round effects from the energy shock, particularly those that could spill over into the labor market. Diviney references the aftermath of the 2022 energy shock, when a tight labor market led workers to demand pay rises to offset real income losses [1]. However, he suggests that this time, a smaller initial inflation shock, pre-emptive ECB action, a higher starting point for interest rates, and a looser labor market should mitigate such dynamics [1].
No specific market reactions or analyst opinions beyond Diviney's forecast are mentioned in the article. Forward-looking statements indicate that the ECB's actions will depend on developments in the conflict and energy prices, with the possibility of holding off on the June hike if conditions improve [1].
CONCLUSION
ABN AMRO expects the ECB to front-load rate hikes to address inflation risks, with a deposit rate target of 2.50%. The likelihood of a June hike depends on the resolution of the conflict and normalization of energy prices. The ECB's proactive stance aims to prevent inflationary pressures from affecting the labor market, with market impact assessed as medium.