Goldman Sachs is joining in on the bandwagon in revising their call ahead of the ECB meeting next month. They had previously forecast the central bank to keep interest rates steady throughout this year. So, the change mirrors that of JP Morgan and Barclays from last week as both also expect the ECB to move in April.
The firm cites inflation risks driven by the conflict in the Middle East, with higher energy prices being the major pain point.
European natural gas prices have surged considerably higher in the past week, although coming off the boil at least on Friday. That being said, they are still roughly double the ECB staff projections for the year ahead. As such, it makes whatever the central bank had forecast or plan for pretty much go out the window.
And with the ECB already sitting on the fence prior to the US-Iran conflict, surging gas prices in Europe will just add to more pain points on stubborn inflation especially in the likes of the German economy. That was the main issue for the central bank over the past six months or so.
Hence, adding the Middle East developments have naturally shifted market pricing to lean towards aggressive rate hikes by the ECB next. The odds of a 25 bps rate hike for April now stand at ~71% with a rate hike by at least June pretty much fully priced in.
