ECB Interest Rate Hike : The European Central Bank (ECB) is going to raise interest rates again to help control too much inflation. The Frankfurt
governing council is increasing rates to try and stop prices from going up too much. They do this every year by making it more expensive for companies and people to borrow money.
ECB President Christine Lagarde has predicted a rate hike. She warned against declaring success over inflation, which has remained stubborn.
The ECB’s rate hike momentum appears to be waning, like the Fed’s. Analysts are waiting to see if the ECB will raise rates in September or stop tightening.
Despite the lower 3% inflation rate than Europe’s 5.5%, the Federal Reserve’s 11th rate increase in 17 months was noncommittal regarding future rate hikes.
Inflation is 5.5% across the eurozone, down from October’s double-digit peak but still above the bank’s 2% target. Raising interest rates is a common way to combat it. Higher borrowing costs limit consumer and company spending, lowering prices.
The ECB’s rate hikes from minus 0.5% to 3.5% in a year were the fastest since the euro’s 1999 adoption. This monetary tightening has slowed goods demand. Germany’s construction industry have the lowest outlook since 2010, and the eurozone’s property market rise has stopped. An April-to-June ECB poll found business loan or line of credit demand at its lowest level since 2003
Germany, the eurozone’s industrial powerhouse and largest economy, worries about recession. The IMF expects Germany to be the only developed economy to decline this year. In June, the country’s manufacturing sector contracted sharply, with a poor purchasing managers’ index of 38.8 points.
Germany has been in a recession for two quarters. Friday will bringApril-June figures. The euro area business cycle dating committee, which declares recessions, uses a bigger dataset. Due to record-low unemployment of 6.5%, the committee called eurozone recession discussion “premature” on June 30.
Russia’s war against Ukraine, which caused severe energy price rises, caused the economic slump. Although oil inflation has slowed, growing costs have flowed into other industries, raising critical goods prices
and decreasing consumer purchasing power.
Market experts predict the ECB’s rate hike will end its tightening cycle. ECB council member Klaas Knot’s reluctance to raise rates on September 14 is notable given his penchant for higher rates.
The Berenberg bank experts think there’s a 60% chance that the ECB will raise interest rates at their meeting in September. But they also say that it’s becoming more likely that they won’t make any changes.
Thursday’s quarter-point increase would raise the ECB’s benchmark deposit rate to 3.75%.