Deposit rate still on track for 4% peak

While it is not a done deal, we think the ECB is most likely to raise its deposit rate by 50bp next week. Economic activity has been more resilient and core inflation higher than the ECB anticipated so far this year, and the banking sector turbulence seems to have blown over without much impact on credit conditions. With the labour market still remarkably tight – and possibly getting tighter – the ECB is likely to raise rates further after next week. We forecast the deposit rate to peak at 4% and expect the Bank to step up the pace of QT from July.