ALBAWABA – The European Central Bank (ECB), the central monetary authority of the Euro currency bloc, will likely raise the benchmark EU interest rate Thursday, in an effort to curb inflation in the Eurozone, news agencies reported.
The ECB has so far raised Euro interest rates by nearly 4 percent, according to Agence France-Presse (AFP), and is likely to follow in the footsteps of the United States (US) Federal Reserve (Fed).
Notably, the Fed raised the US interest rate for the 11th time since March 2022 to the range of 5.25-5.5 percent, which is the highest in 22 years.
So far, Euro interest rates have hit their highest levels since 2000, with the closely watched deposit rate at 3.75 percent, as reported by AFP.
Meanwhile, unlike the situation in the US, which is seeing positive results, leading to a potentially “soft landing”, as Fed Chief Jerome Powell confirmed, the EU economy is losing steam.
While the US economy is actually growing, collectively, the 20 countries in the Eurozone have fallen into recession this year, shrinking for two straight quarters, according to AFP.
Yet consumer prices have continued to rise at an alarming speed.
The rate of inflation in the Eurozone sat at 5.5 percent in June – down from last year's double-digit peak but still well above the ECB's two-percent target.
Pricing in Euro interest rate hikes
It is difficult to determine the ECB’s next step or the outcomes of the meeting on Thursday.
A flood of data due in the interim and recent figures revealing fiercer underlying inflation pressure alongside a weakening euro-zone economy all contribute to a complex situation, Bloomberg reported.
Communication may be the ECB’s top-most challenge at this point. As policymakers will want to retain maximum flexibility by not sending too-decisive a signal in either direction, the New York-based news agency reported.
Nonetheless, more economists are betting that this likely Euro interest rate hike on Thursday will be the last in the central bank’s policy cycle, according to Bloomberg. Especially as traditionally hawkish ECB officials undermined the likelihood of another hike in September.
A slim majority of economists polled this month by Bloomberg still predicted a 4 percent peak in the benchmark Euro interest rate. Though they’re not convinced policymakers will be able to stick at that level for as long as they want, or need, for that matter.
