Traders Delay Bets on First ECB Rate Hike in 2022 to December

(Bloomberg) --

Traders are backing off on aggressive wagers on European Central Bank rate hikes this year as prospects for tighter monetary policy were overshadowed by tensions between the West and Russia over Ukraine. 

Money markets now see the ECB delivering its first quarter-point increase in more than a decade in December, from October previously. As recently as last week, two such increases were baked into markets by year-end. The pullback comes as President Vladimir Putin announced he’s recognizing two self-proclaimed separatist republics in eastern Ukraine. 

Euro-area inflation unexpectedly accelerated to a record in January, emboldening a shift in thinking toward rate hikes among Governing Council members. Policy makers including Joachim Nagel, Martins Kazaks and Peter Kazimir all recently said that tightening was possible by the end of the year. 

Last month’s soaring inflation even spurred economists at Goldman Sachs Group Inc. to Deutsche Bank AG to forecast 25-basis-point rate hikes in September and December, raising the ECB’s deposit facility rate to 0% by year-end. 

However, ECB President Christine Lagarde warned on Friday that acting too quickly to temper inflation would risk weakening the euro-area economic recovery in an interview with the German press on Friday. 

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