Bond.az reports that UBS expects the European Central Bank (ECB) to raise interest rates by 25 basis points to 2.25% at its June 11 meeting.
However, the bank warns that investors may be underestimating the risk of further tightening later this year.
The rate hike next week is nearly certain, supported by signals from ECB President Christine Lagarde and other board members.
UBS ruled out a larger 50-basis-point move, citing that current inflation dynamics are less dramatic than in 2022/23.
The more important question, they say, is what comes after June. Press reports suggest the ECB may need to hike at least twice this year.
This implicitly opens the door to three hikes, a scenario markets are already partly pricing in.
UBS acknowledges upside risk to its call for just two hikes and will watch for signs of a second hike as early as July 23.
On the ECB's updated macroeconomic projections, UBS expects GDP growth forecast to be revised down to 0.7% and inflation forecast up to 2.9% for 2026.
