(Reuters) - BNP Paribas (EPA:BNPP) said on Friday that it no longer expects the European Central Bank to raise its main interest rate in September after the central bank struck a more dovish tone than expected on Thursday.
The ECB hiked rates by 25 basis points (bps) on Thursday, taking the deposit rate to 3.75%, but raised the possibility of a pause in its next meeting as inflation pressures show tentative signs of easing and recession worries mount.
"The shift from an explicit tightening bias to an outright neutral bias for the future path for policy rates was more dovish," said economists at BNP Paribas.
"Given our forecast for core inflation to fall, albeit slowly, we think that a pause is more likely than a hike in September."
They had earlier expected the ECB to raise rates by another 25 bps hike in the September meeting, for a terminal rate of 4%.