ECB to raise interest rates on Thursday in the face of inflation in Europe

The European Central Bank will raise interest rates again on Thursday to fight runaway inflation and, with a big move in the pipeline, the only question is how much.

Concerned that sky-high inflation is becoming increasingly entrenched, policymakers are scrambling to contain the bloc’s most damaging price rise in nearly half a century, as it eats into household savings and weighs on output. of companies.

Ultimately, the choice will be between a 50 and 75 basis point increase in the zero percent deposit rate.

The latter would be the biggest increase ever made in the ECB’s benchmark rate, but regardless of the outcome, the direction of the bank’s move will be clear.

Further increases are forecast in the coming months as price pressures already expected to usher in a winter recession consistently exceed even the most pessimistic forecasts.

“We think it’s a very close decision, with good arguments on each side, but ultimately, we think those advocating a bigger increase will prevail as September offers the best opportunity to send a clear signal of determination,” Jens said. Eisenschmidt, economist at Morgan Stanley.

ECB forecast updates are sure to show markedly higher inflation and significantly weaker economic growth.

Soaring energy prices undermine purchasing power and will almost certainly plunge the bloc into a recession that could be exacerbated by an aggressive ECB, especially as borrowing costs rise for governments trying to help those most affected.

Eurozone headline inflation is above 9%, indicating that more and more energy-driven price pressures are seeping into the wider economy.

(By Balazs Koranyi)