Balazs Koranyi and Francesco Canepa
FRANKFURT (Reuters) – The European Central Bank is set to raise interest rates again on Thursday to fight runaway inflation and take a major move to a record high to consider , the only question is how much.
With fears that high inflation is becoming more entrenched, policymakers are scrambling to rein in the EU’s most damaging bout of price growth in nearly half a century as it eats away at household savings and drags on enterprise output.
Ultimately, the selection will be between and Zero interest rate hike basis points.
The latter will be the largest ever hike in the ECB’s benchmark rate, but whatever the outcome, the bank’s direction will be clear.
More rate hikes are to come in the coming months as price pressures already anticipated for a winter recession continue to outpace the most pessimistic forecasts.
Boosted by hawkish rhetoric from conservative policymakers, the market has now all but priced in bps of upward revision. The vast majority of economists polled by Reuters also forecast larger gains.
“We think it’s a very close decision, with good arguments on both sides, but ultimately think those arguing for a bigger rate hike will prevail, as September was a clear The best chance for a signal of determination,” Morgan Stanley (NYSE : MS) economist Jens Eisenschmidt said.
“Just like that 50 or basis points, …. .. we saw the ECB’s rate hike cycle ended at 2% in March.”
The update to the ECB forecast will certainly show sharp inflation rose and economic growth was significantly weaker.
High energy prices will erode purchasing power and almost certainly tip the EU into recession, which could be exacerbated by an aggressive ECB, especially as governments try to help the worst-affected countries by borrowing Costs go up.
After a decade of ultra-low interest rates, this also goes against the ECB’s guidance on incrementalism, including board member Fabio Panetta and Greek central bank governor Yanis Several policymakers, including Stunaras, have made the case for a smaller move.
Central banks are also incapable of dealing with inflation caused by supply-side disruptions, and raising interest rates now will affect the economy for years to come, when inflation will subside on its own.
However, cautious action now could push up already high long-term inflation expectations, undermine the ECB’s credibility to fight inflation, and Challenge its mission framework.
Headline inflation in the euro area is above 9%, while its base rate is 4.3%, more than double the ECB’s target, suggesting that more energy-driven price pressures are penetrating wider in the economy.
Small moves would also weaken the euro as the Fed significantly accelerates rate hikes, which in turn would further fuel inflation as energy is denominated in dollars.
This is why nearly half a dozen policy makers have publicly supported putting the base point option on the table, thereby making The debate has hawkish momentum.
The impending recession also makes a case for an early rate hike, as it will be difficult to communicate once a downturn takes hold.
Some policymakers may even welcome a mild recession, which could provide relief to companies currently struggling to find workers as the EU labor market tightens.
“We expect rate hikes 1215, 50 and 1215 Basis point at this year’s upcoming meeting, deposit rates move into neutral territory as the economy slows, with three more hikes next year basis points” Societe Generale (OTC: SCGLY) Economist Anatoly Annanko husband said.
Beyond the rate announcement, the ECB will likely discuss changes to how it pays interest on excess reserves to commercial banks, which will now have trillions of euros worth of cash circulating in the financial system Enjoy a risk-free windfall.
The ECB is also likely to discuss whether to start shrinking its balance sheet as part of its policy normalization process.
However, no decision is expected at either stage
ECB at GMT 1245 announced its policy decision and released new economic forecasts, followed by 1245 GMT.