BitcoinWorld ECB Hiking Cycle Expected to Extend to 3%, Nordea Analysts Forecast Nordea analysts have projected that the European Central Bank’s (ECB) current tightening cycle will extend fur
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ECB Hiking Cycle Expected to Extend to 3%, Nordea Analysts Forecast
Nordea analysts have projected that the European Central Bank’s (ECB) current tightening cycle will extend further, with the deposit rate likely reaching 3% before the central bank pauses. The forecast, released in a recent research note, underscores expectations that the ECB will continue raising rates to combat persistent inflation in the eurozone, despite growing signs of economic slowdown.
The Nordic bank’s economists now see the ECB’s deposit facility rate peaking at 3%, up from earlier estimates. This implies additional rate hikes beyond the current level, which stands at 2.5% following the ECB’s February 2025 meeting. Nordea’s base case suggests a 25-basis-point increase in March, followed by another quarter-point move in the second quarter, before the central bank assesses the cumulative impact on the economy.
The revised forecast aligns with a growing consensus among market participants that the ECB is not yet done tightening. Core inflation in the eurozone remains stubbornly above the ECB’s 2% target, driven by elevated services prices and robust wage growth in several member states. Nordea’s analysis highlights that the labor market remains tight, with unemployment at historic lows, adding upward pressure on wages and, consequently, services inflation.
If the ECB follows the path Nordea outlines, the euro could see renewed support against major currencies, particularly the US dollar. A higher terminal rate would narrow the interest rate differential between the eurozone and the US, especially if the Federal Reserve begins cutting rates later this year. Nordea’s currency strategists have noted that a 3% ECB deposit rate would make euro-denominated assets more attractive, potentially driving EUR/USD toward the 1.12-1.14 range in the coming months.
However, the outlook is not without risks. A more aggressive tightening cycle could exacerbate the economic slowdown already visible in manufacturing data across Germany and France. Nordea acknowledges that the ECB faces a delicate balancing act between curbing inflation and avoiding a deep recession. The bank’s economists emphasize that the pace of future hikes will depend heavily on incoming data, particularly wage negotiations and core inflation readings.
For households and businesses in the eurozone, a 3% peak rate would translate into higher borrowing costs for mortgages, corporate loans, and consumer credit. Variable-rate mortgage holders, particularly in countries like Spain, Portugal, and the Netherlands, would face further increases in monthly payments. On the positive side, savers would benefit from improved returns on deposits and savings accounts, although banks have been slow to pass on the full extent of rate hikes to depositors.
Nordea’s forecast also has implications for eurozone government bond yields. The 10-year German Bund yield, the benchmark for the region, could push toward 2.8% or higher as markets price in a more extended tightening cycle. Higher yields would increase borrowing costs for heavily indebted eurozone governments, such as Italy and Greece, potentially reigniting concerns about fiscal sustainability.
Nordea’s projection of a 3% terminal rate for the ECB reflects a view that inflation remains the primary concern for policymakers, even as growth risks mount. The actual path will depend on evolving economic data, but the forecast provides a clear benchmark for markets and investors. For now, the message from Nordea is clear: the ECB hiking cycle has further to run, and 3% is the new target.
Q1: What is the current ECB deposit rate?The ECB’s deposit facility rate currently stands at 2.5%, following a 50-basis-point hike in February 2025.
Q2: Why does Nordea expect the ECB to raise rates to 3%?Nordea cites persistent core inflation, tight labor markets, and robust wage growth as key reasons the ECB will need to continue tightening to bring inflation back to its 2% target.
Q3: How would a 3% ECB rate affect the euro?A higher terminal rate would likely strengthen the euro against the US dollar and other currencies, as it narrows interest rate differentials and makes eurozone assets more attractive to investors.
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