Deutsche Bank raises ECB terminal rate forecast to 2.75%, expects an additional 25 basis point hike in December

(1) The research department of Deutsche Bank had previously anticipated that the deposit facility rate would peak at 2.5% (currently 2.25%), but now believes that this assumption is facing challenges, primarily because ongoing geopolitical energy risks are putting upward pressure on the inflation outlook. (2) Based on this, the bank expects that the European Central Bank will follow the rate hike in September with another 25 basis point increase in December, pushing the terminal rate up to 2.75%. However, the eurozone labor market remains relatively weak, and there is still a lack of evidence that broader price pressures are fueling wage growth. (3) Deutsche Bank points out several scenarios: if geopolitical tensions ease more quickly or growth weakens, the terminal rate could still remain at 2.5%; conversely, without broader transmission of inflationary pressure, there is insufficient basis for the rate to surpass 3%. The European Central Bank is scheduled to announce its rate decision on September 10, and the market widely expects a rate hike at that time.