The European Central Bank will go for another jumbo 75 basis point increase to its deposit and refinancing rates when it meets on Oct. 27 as it tries to contain inflation running at five times its target, a Reuters poll found.

As in much of the world, euro zone inflation has soared on skyrocketing energy prices and supply chains still healing from the coronavirus pandemic have taken a further hit from Russia's invasion of Ukraine.

The ECB targets inflation at 2.0%, yet it was 10.0% last month. It will average at a peak of 9.6% this quarter, higher than thought last month, before gradually drifting down but will not reach target until late 2024, the poll found.

"Inflation is far too high. Rapid rate rises are needed. However, the ECB also needs to keep an eye on bond spreads, so more than 75bps seems unlikely," said Brian Martin at ANZ.

Much of the price pressure is coming from energy costs. With no end in sight to the Russia-Ukraine conflict, nearly 65% of 34 respondents said the cost of living in the euro zone would worsen or worsen significantly. Only 12 said it would improve.

"The worst impact of the energy crisis on the household sector will develop in Q4 2022 and Q1 2023, when the demand for gas is seasonally higher," said Luca Mezzomo at Intesa Sanpaolo 

In the run-up to winter, forecasters are expecting the ECB to be more aggressive in tightening policy.

The bloc's central bank will take the deposit rate to 1.50% and the refinancing rate to 2.00% next Thursday, a view held by an overwhelming majority of respondents in the Oct. 12-18 Reuters poll of more than 60 economists.

Source : ECB to go big again on Oct. 27 with 75 bps rate hike: Reuters poll