The European Central Bank will hold fire on raising interest rates until at least October, according to a poll of economists who sound increasingly at odds with markets, which expect a hike sooner.
The Reuters poll of over 80 analysts, taken this week, saw a consensus view that the first hike from 1.0 per cent would come in the fourth quarter, but with inflation running above the ECB'S target - and likely to jump higher on soaring energy prices - expectations for an earlier hike are growing.
None of the 82 analysts expected the central bank to raise rates when it meets on March 3rd, although 21 of 81 economists polled now see a hike in the third quarter, up from the 16 of 79 in a poll taken earlier this month.
While this consensus seems to be edging slowly towards a sooner rate hike, it is still a far cry from expectations derived from money markets which have priced in a 25 basis point increase by August, and a further similar move by November.
"As the economic recovery in the core European countries gathers pace and HICP inflation stays above 2 pe rcent for at least three quarters of 2011, the current stance of monetary policy is no longer adequate," said Gernot Griebling at LBBW.
US crude oil futures climbed to 2.5-year highs on fears that output disruptions in Libya may spread to other Middle East oil producers while rising food and clothing prices have also added pressure.
The ECB has kept rates at a record low since May 2009 to bolster an economy that was mired in recession but recent signs of a concerted upswing have focused its attention on keeping inflation closer to the two percent target ceiling.
Data suggests the 17-nation region's German-led recovery is spreading to peripheral members but that recovery is coming at a cost, with consumer prices rising 2.4 per cent in January. Inflation is not seen slipping below target until early next year.
Median forecasts see interest rates rising to 1.25 per cent in the final three months of this year and then by 25 basis points in each of the following three quarters, the same as in the poll taken earlier this month.
"We think that the central bank will raise rates for the first time in September of this year, but recent data and hawkish comments from officials suggest that the balance of risks to our view is tilted towards an earlier rate increase," said Nick Kounis at ABN AMRO.
ECB Governing Council member Yves Mersch is the latest official to strike a hawkish tone over recent days, confirming yesterday that the central bank is moving towards a tightening bias.
Mr Mersch's comments echoed earlier statements from Nout Wellink, Lorenzo Bini Smaghi and Juergen Stark that suggested the ECB might move its risk assessment towards seeing upside risks from the current view of balanced inflation risks.
Reuters
