ECB seen to adopt first rate hike in December 2019 owing to increased downside risks to growth, inflation: Danske Bank

The European Central Bank (ECB) is expected to adopt its first rate hike of 20 basis points in December 2019, i.e. after Mario Draghi's reign ends in October same year. This is primarily owing to the increased downside risks to growth and inflation and the ECB is also expected to revise its growth forecast down in its next staff projection in June, according to the latest research report from Danske Bank.

Further, the central bank is likely to remain reactive and not proactive, as was reflected in the accounts, which six times mentioned 'patience and persistence' regarding monetary policy. Added to this stance, is an inflation profile that continues to be subdued and, consequently, the ECB is expected to prefer taking a cautious stance.

"Our updated inflation expectations, which also include 2020, are 1.4 percent, 1.4 percent and 1.5 percent for 2018, 2019 and 2020, respectively. We expect core inflation to be 1.5 percent in December 2019," the report added.

Meanwhile, with respect to the next week’s meeting, Danske Bank expects Draghi to acknowledge the FX, trade war risks and downside risks to the ECB's growth forecasts on the back of the moderation in data as the main risks to the downside.

In particular, a softer tone in the ECB's assessment on growth is expected, which in March was 'strong and broad-based' and 'projected to expand in the near term at a somewhat faster pace'.

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