Will Deterioration in Economic Forecast Force ECB to Change Its Rate Hike Plan?

Forex News

The European Central Bank is due to wrap up its 2.6 trillion euro bond buying program next month, paving the way to raise interest rates sometime after next summer for the first time in eight years, as part of a long path toward monetary policy normalization.

Still, Eurozone money markets no longer fully price in a 10 basis point rate hike from the ECB in 2019, indicating growing investor concern about the economic outlook in the single currency bloc. Money market futures dated to the ECB's December 2019 meeting now price only a 95% chance of a rate hike, from a 100% chance on Monday.

Meanwhile, some economists expect a 10 bps rate hike in March 2020 and a second one in September 2020. The main factor behind the change is the deterioration in the economic outlook.

On its meeting last month, the ECB left monetary policy in the Eurozone unchanged once again. It also reiterated its stance that interest rates are unlikely to rise until at least next year, saying it "expects the key ECB interest rates to remain at their present levels at least through the summer of 2019."