Morgan Stanley now sees ECB’s terminal rate at 4%

Morgan Stanley on Friday revised up its projection for the European Central Bank’s terminal rate to 4%, as inflationary pressures in the Euro Area continue to persist.

The Wall Street bank had previously forecast a terminal rate of 3.25%.

“Following material revisions to our inflation forecast, we now expect the ECB’s terminal rate at 4%,” Morgan Stanley wrote in an investor note.

Other investment banks also made similar revisions.

Earlier this week, JPMorgan said it projected an ECB terminal rate of 3.75%, up from a previous forecast of 3.50%.

And, in February, Deutsche Bank raised its terminal rate forecast to 3.75% from 3.25% previously, while Barclays raised its projection to 3.50%.

An unexpected surge in underlying inflation across the Euro Area, reported this week, only reinforced prospects of more over-sized rate hikes by the ECB during the spring.

In a client note, Barclays said that it projected 50 basis point rate hikes in March and May, followed by 25 basis point hikes in June and July.