The European Central Bank (ECB) is planning another big interest rate hike this week, Bloomberg reported.
A second consecutive three-quarter point hike – an increase that seemed almost unthinkable earlier this year but became the norm after three of these Federal Reserve moves – would bring the deposit rate to 1.5%.
However, economists expect steeper jumps and a higher final rate. Analysts see the deposit rate peak at 2.5% in March, but expect the pace of hikes to slow after this month.
“The ECB is not nearly done with its fight against inflation,” said Elmar Voelker, a fixed income analyst at Landesbank Baden-Wuerttemberg, Germany’s largest regional state bank. “But they could start acting more flexibly from early 2023.”
The International Monetary Fund has warned of a “toxic mix” of rapid inflation and slowing economic growth, predicting recessions in more than half of the euro zone’s 19 members this winter. At the same time, it is argued that tight monetary policy is likely to continue into the next year.
The ECB “must not relax too soon,” Bundesbank President Joachim Nagel said in Washington last week, while Slovakia’s Peter Kazimir said the institution “must continue to act”. Money markets see borrowing costs rising more than 3% in 2023, a level of Belgian central bank chief Pierre Wunsch called “reasonable”.
Recall that at the end of July this year the ECB announced the first expected increase in interest rates. This happened for the first time in a decade.
The Governing Council therefore raised the ECB’s three main interest rates by 50 basis points. In September, the institution raised its benchmark interest rates again, this time by an unprecedented 75 basis points, signaling further hikes
