European Central Bank set to hike rates for the first time in 11 years

That outlook is getting murkier by the day because inflation is still accelerating and growth slowing sharply

European Central Bank
Surging inflation, the euro’s drop below parity with the dollar, and an impression that policy makers are behind the curve are just some reasons for a big increase on Thursday
Agencies
2 min read Last Updated : Jul 18 2022 | 10:33 PM IST
The European Central Bank is set to deliver its first interest-rate hike since 2011 this week, yet markets are already fast-forwarding to focus on the path for higher rates beyond Thursday as economic prospects darken.
 
That outlook is getting murkier by the day because inflation is still accelerating and growth slowing sharply.
 
“The trade off the ECB is facing is more severe than any of the other major central banks,” said Silvia Ardagna, head of European economics research at Barclays.
 
No matter how much European Central Bank officials dismiss the prospect of starting interest-rate hikes with a half-point move this week, there’s still a case for it.
 
Surging inflation, the euro’s drop below parity with the dollar, and an impression that policy makers are behind the curve are just some reasons for a big increase on Thursday. 
 
Among arguments against are the ECB’s commitment to a quarter-point hike, the market’s acceptance of that, a precarious growth outlook, and Italian political turmoil.
 
“It’s true that they’ve communicated something else,” said Martin Weder, an economist at Zuercher Kantonalbank who says hope has persuaded him to make one of the only forecasts for a half point. “The signs are clearly pointing 
 
to a normalisation — and the ECB hasn’t even begun.”
 
President Christine Lagarde has described a quarter point as an “intention” while cautioning a decision hasn’t been taken.  
Almost all economists anticipate such an outcome, as do investors.

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Topics :European Central BankEurope economyChristine Lagarde

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