FRANKFURT, GERMANY (AFP) – The European Central Bank (ECB) will almost certainly deliver another interest rate hike on Thursday, pressing ahead with its fight against inflation even as the eurozone slides into a recession.
Analysts predict that ECB policymakers will copy May’s move and again raise borrowing costs by 25 basis points, taking the closely watched deposit rate to 3.50 per cent. It would be the Frankfurt institution’s eighth-consecutive hike since last July, when it kicked off an unprecedented campaign of monetary tightening after the war in Ukraine sent food and energy costs surging.
Eurozone inflation slowed to 6.1 per cent year-on-year in May after hitting a peak of 10.6 per cent last October, suggesting the ECB’s efforts were having an impact.
But with the bank’s two-per-cent inflation target still out of reach, policymakers have stressed it was too early to take the foot off the gas, hinting at rate hikes even beyond June.
ECB President Christine Lagarde said earlier this month rates were getting “closer to our cruising altitude”, but “we need to continue climbing”.
The picture is different in the United States where the Federal Reserve is expected to pause its rate-hiking cycle tomorrow after 10 consecutive increases, as it takes stock of how its tightening is feeding through to the real economy.
Like central banks around the world, the ECB has to walk a fine line between raising borrowing costs to dampen demand and tame inflation, without triggering a deep economic downturn.
Revised data last week showed that the 20-nation eurozone unexpectedly shrank by 0.1 per cent for two straight quarters at the end of 2022 and the start of 2023, meeting the technical definition of a recession.
Much will depend on the ECB’s latest economic forecasts, set to be unveiled on Thursday.
Observers expected little change from the previous projections, which saw inflation only returning to target in 2025, at 2.1 per cent.
