(Reuters) – Goldman Sachs lowered its estimate for an interest rate hike by the European Central Bank (ECB) in May to 25 basis points after the central bank raised rates to fight inflation amid calls to rein in policy tightening.
The investment bank reduced its estimate from the earlier forecast of 50 bps, pushing its ECB terminal rate forecast to 3.5% from 3.75% previously.
The revised forecast comes after the ECB raised interest rates by 50 bps on Thursday.
“We believe that further rate hikes are likely despite the financial market volatility because the risk of severe banking sector contagion still looks limited and core inflation is likely to remain strong in coming months,” Goldman Sachs economists, led by Sven Jari Stehn, said in a note dated March 16.
A rout in global markets triggered by the collapse of Silicon Valley Bank and Signature Bank and made worse by doubts around the future of Swiss lender Credit Suisse have prompted some to question whether the ECB would pause its rate hike cycle.
The investment bank anticipates the ECB will continue to be in tightening mode despite volatility in financial markets and expects Europe’s core inflation to remain firm in coming months.
(Reporting by Subhadeep Chakravarty; Editing by Sonia Cheema)
