(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

The European Central Bank is still more than one and a half years away from raising interest rates, according to economists polled by Bloomberg.

A week before the Governing Council’s upcoming policy meeting, respondents said an end of bond-buying in March next year would pave the way for the ECB’s first post-pandemic hike in September 2023. That would put the institution nearly two years behind the Bank of England, which has already raised borrowing costs to rein in surging inflation.

Most survey participants said consumer-price growth in the region -- at 5% now -- will likely settle below the ECB’s 2% target next year, putting less pressure to act on euro-area officials than their U.K. and U.S. peers. Their focus next Thursday will be on affirming a plan to halt emergency purchases this March and pledging to prevent any wage-price spirals, economists said.

“The ECB will try to reach a reasonable balance between its readiness to change course if inflation pressures prove more persistent and its prudence not to tighten prematurely,” said Kristian Toedtmann, an economist at DekaBank.

With the Bank of England gearing up for its second consecutive rate increase next week and the Federal Reserve bracing for fast tightening following a lift-off in March, investors have pulled forward bets for an ECB hike as early as this year. Policy makers including President Christine Lagarde have pushed back against those expectations, highlighting the “very different situations” the three economies face.

What Bloomberg Economics Says...

“Lagarde will probably reiterate that the ECB is unlikely to hike in 2022, but refrain from pushing back on market expectations for tightening in 2023. A failure to push back on market pricing for 2022 would be a sign that the Governing Council is shifting to a more hawkish stance.”

--David Powell. Click here for the full report

Deutsche Bank is among the small minority predicting a move in December. Analysts in the survey only see a 10-basis-point increase in the deposit rate -- currently at -0.5% -- in September 2023.

“Market participants might think that both inflation pressures, as well as pressures from Federal Reserve’s tightening cycle, should affect the ECB’s decision to lift off later this year,” said Poon Panichpibool, a strategist at Krung Thai Bank Pcl in Bangkok. “The ECB will focus on growth and the labor market more than those two factors.”

Economic growth slowed sharply at the end of last year, and the International Monetary Fund already slashed its 2022 outlook for the euro zone. While supply-chain disruptions that have held back the region’s recovery are expected to ease, intensifying tensions at the Russia-Ukraine border have emerged as a new risk. 

Governing Council member Gediminas Simkus has warned of “huge” economic losses should hostilities escalate. 

The inflation outlook is turning more uncertain as a result. About half of the euro area’s record gains in consumer prices are due to gas -- a crucial import from Russia -- as well as electricity and oil.

Some policy makers have started to warn that a “higher for longer” inflation scenario can’t be ruled out, others argue that the latest developments are fully in line with their expectations.

Official projections published in December anticipate price growth of 3.2% in 2022 and 1.8% in both 2023 and 2024. More than half of survey respondents said these expectations are “likely” or “highly likely” to pan out. Just over a third said it’s an “unlikely” or “highly unlikely” scenario.

If ECB officials share this worry, they probably won’t ring the alarm just yet.

“The ECB might get more concerned about the recent increase in inflation rates, but we wouldn’t expect a complete change of the wording on inflation,” said Ulrike Kastens, an economist at DWS Group in Frankfurt. They might just stress their “data-dependency” in finding their course, she said.


©2022 Bloomberg L.P.