ECB Expected to Hike Interest Rate. The European Central Bank or ECB will decide this Thursday evening (14/9/2023) whether to raise the benchmark interest rate to a record high which could be called the final step, or hold it due to the worsening economy.
The ECB now faces a dilemma. Despite raising interest rates nine times in a row, inflation remains more than double the 2 percent target and is not expected to reach that target for the next two years.
Analysts and investors predominantly predict that the ECB interest rate will experience a pause. However, Reuters in its report on Tuesday (12/9/2023) said that the ECB would raise its projections for next year by more than 3 percent.
Policymakers see the 2024 projections as crucial for determining whether inflation, which is currently still above 5 percent, will return to target or be stuck at higher levels for a long time. Most economists expect the ECB to keep interest rates on hold this week.
However, with the change in tone, money markets are now giving the odds of a 63 percent rise, which is expected to be the last in the cycle that starts in July 2022. An increase of 25 basis points (bps) on Thursday (14/9) will bring the interest rate paid on bank deposits to 4 percent, the highest level since the euro was launched in 1999.
Then, those in favor of raising interest rates, might argue that this move is being taken because inflation, including a basic measure that removes the volatile component, is still too high with surging energy prices threatening a new acceleration.
ECB Expected to Hike Interest. On Thursday (14/9) the ECB is also expected to cut its growth projections for this year and 2024, leading some economists to argue that the ECB needs to delay raising interest rates this month.
