Wall Street bank Morgan Stanley on Friday raised its forecast for the European Central Bank’s (ECB) so-called terminal rate – the level to which it believes the ECB’s key interest rate will rise – to 4% as inflationary pressures weigh on the euro zone.
“Following material revisions to our inflation forecast, we now expect the ECB’s terminal rate at 4%,” the bank wrote in a research note.
The move by Morgan Stanley, which had previously seen the ECB terminal rate at 3.25%, follows similar revisions by other leading investment banks, driven by inflationary pressures within the euro zone.
Data this week showed a surprise surge in underlying inflation across the 20-nation euro zone.
JP Morgan this week raised its forecast on the ECB’s ‘terminal’ rate to 3.75% from 3.50% previously. Last month Deutsche Bank lifted its forecast to 3.75% from 3.25%.
On Friday, ECB governing council member and Belgian national bank governor Pierre Wunsch said the ECB could consider raising its key interest rate to as high as 4% if underlying inflation in the euro zone remains persistently high.
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