"This policy is more likely to result in (voluntary) overtightening of rates followed by a correction than to a long plateau," a Citi research note said. December 2023 ECB euro short-term rate forward was at 3.98% , implying expectations for a depo rate at around 4.1% by year-end. Nomura economists raised their terminal depo rate forecast from 3.50%, a view they had held since October 2022, to 4.25%. "We continue to see eventual cuts but have pushed the timing of the first cut back to Q4 2024," a Nomura research note said. "We expect the ECB to lower rates back to 2.75% by mid-2025." Germany's 10-year bond yield , the bloc's benchmark, fell one bps to 2.718%. It hit its highest since July 2011 last week at 2.77%. Austrian central bank chief Robert Holzmann advocated on Monday four ECB steps that would take the deposit rate to 4.5%, boosting bond yields. "His opinion that rates are only restrictive above 4% is probably a minority view in the council, yet €STR-forwards edged higher, pricing the terminal rate now almost at 4.1%," said Commerzbank rate strategist Hauke Siemben. ECB president Christine Lagarde said the day before a 50 bps hike in March was "very, very likely".
"The ECB doesn't have a ceiling, but an inflation target of 2%," she added when asked about the central bank raising rates to 4% or above and a possible ECB ceiling to rate hikes. Analysts flagged that the ECB consumer expectations survey, due later in the session, may get more attention than usual after ECB chief economist Philip Lane said the survey is among the inputs used to make rate decisions in the meeting-by-meeting approach. (Reporting by Stefano Rebaudo, editing by Ed Osmond)
