UPDATED: UBS expects ECB to deliver another 25 bp rate hike in July before taking pause

May 5 (Reuters) – UBS economists said the European Central Bank (ECB) was likely to hike interest rate by another 25 basis points (bps) in July, lifting the benchmark for borrowing costs to 3.75%, before taking a pause for this rate increase cycle.

The brokerage said in a note on Thursday that inflation will likely slowly improve over the summer.

The ECB on Thursday raised its benchmark rates by 25 bps – the smallest increase in its rate-hike cycle that started last summer — to 3.25%.

The European Central Bank will continue increasing interest rates until inflation is under control, French ECB policymaker Francois Villeroy de Galhau said on Friday.

“The essence of the effort has been done, although there will probably a few more rate hikes,” Villeroy said on Radio Classique

Villeroy explained this deceleration of the increase by the fact that higher rates was beginning to have an effect on inflation.

“We see that the impact of the rate hikes has percolated through the economy,” he said, adding that the bank would not let up.

“The duration (of the rate hikes) now is more important than the speed … We will be persistent until inflation is under control,” he said.

He added that the ECB aims to bring inflation back to 2% by 2025, “maybe even by the end of 2024”.

Villeroy said the bank’s goal is to win the fight against inflation without triggering a recession.

“Our target is not to slow the economy but to beat inflation,” he said.