The European Central Bank is widely expected to raise interest rates on Thursday as it moves to prevent inflation from being reignited by rising energy costs linked to the Iran war.
Inflation across the 21-country eurozone remains above 3 percent, well over the ECB’s 2 percent target, while economic growth continues to stagnate, leaving policymakers divided over how aggressively to tighten policy.
‘Insurance hike’ to protect credibility
Economists expect what many are calling an “insurance hike” — a precautionary move aimed at anchoring inflation expectations and restoring credibility after the post-pandemic surge in prices.
The deposit rate is set to rise to 2.25 percent, marking the first increase in almost three years, with officials unlikely to commit to further immediate hikes but leaving the door open for more action later in the year.
Markets are already pricing in up to two additional increases, with another move possibly coming as soon as September.
However, not all analysts are convinced. Some warn the ECB risks tightening into a weakening economy already strained by energy shocks and soft consumer demand.
The bank will also release new projections on Thursday, which are expected to show a more hawkish outlook on inflation and signal that policymakers remain alert to further risks.
