The Federal Reserve will raise borrowing costs by at least as much as the European Central Bank (ECB...
The Federal Reserve will raise borrowing costs by at least as much as the European Central Bank (ECB) in 2006, according to a Royal Bank of Scotland Group survey.
The Federal Reserve has raised interest rates 14 consecutive times since June 2004 to a four-year high of 4.5%, and futures prices show traders expect the central bank to raise rates twice more.
The ECB raised its benchmark rate for the first time in five years in December. It will probably raise borrowing costs to 3% by the end of the year, futures prices show.
"Given that the Fed has been raising rates for nearly two years, its pretty surprising that people think they still have more to do than the ECB," says John Wraith, head of rates strategy in London at RBS.
"It betrays a lack of belief in the durability of the eurozone recovery."
Nearly 38% of respondents to the survey, said the Fed will raise its benchmark lending rate more than its European counterpart and 28% said the two will raise rates by an equal amount, according to the 61 respondents surveyed between 24 Feb and 1 March.
The remaining 34% believe the ECB will raise rates by more than the Fed.
The survey results correspond with RBS's own forecasts, which are for the Fed to raise rates four more times, to 5.5%, and for the ECB to raise rates once more, to 2.5%.
All 47 economists surveyed by Bloomberg expect a quarter-percentage point rise when the ECB meets to decide on borrowing costs.
More than 60% of respondents to the RBS survey forecast ECB rates to rise to between 2.75% and 3% by the end of the year.
"The results would argue that the US recovery is proving more prolonged than people had thought and the eurozone recovery is in some doubt later in the year," Wraith says.
Interest rate futures show traders are pricing in a 98% chance the Fed will raise the rate to 4.75% when policy makers meet on 28 March.
The odds of another quarter-point increase at the 10 May meeting are about 68%, compared with none two months ago.
Investors expect the ECB to raise borrowing costs at least three times this year to 3%, futures prices show.
The yield on the three-month Euribor contract due in December 2006 has risen 12 basis points, in the last week, to 3.22%.
The contracts, which trade electronically on the London International Financial Futures Exchange, settle to the three-month interbank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the currency's launch in 1999.
Fed will raise interest rates by at least as much as the ECB
Fed raised interest rates 14 consecutive times since June 2004, presently at 4.5%
ECB raised its benchmark for the first time in five years and is set to raise the cost of borrowing to 3%
Traders are pricing in 98% chance of Fed raising rates to 4.75% on 28 March
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