Will the ECB deliver one more rate rise?
Will the ECB deliver one more rate rise?
For the first time in more than a year, the European Central Bank’s decision of whether to raise interest rates at its meeting on Thursday is resting on a knife-edge.
Having already raised its benchmark deposit rate from minus 0.5 per cent last summer to 3.75 per cent as it tackled the biggest surge in inflation for a generation, the ECB now seems to be approaching the peak of its policy tightening.
Investors’ doubts over whether the central bank will raise interest rates for the 10th consecutive time have intensified amid widespread signs of an impending economic downturn, including weaker business confidence and falling German industrial production.
The ECB will also publish new quarterly forecasts after its meeting on Thursday, which most economists expect to include a weaker outlook for growth and a slight increase to its inflation expectations for this year and next year.
“As forward looking growth data has been identified as having disappointed lately, we expect this to be sufficient to justify staying on hold next week,” said Peter Schaffrik, global macro strategist at RBC Capital Markets.
Derivatives markets are pricing about a 35 per cent chance of the ECB raising its deposit rate to 4 per cent on September 14.
However, with eurozone inflation of 5.3 per cent in August still running well above the ECB’s 2 per cent target, there are many economists who believe another — and almost certainly final — rate rise is still possible.
“It is a very close call, but still too high inflation, a focus on actual rather than on predicted developments, and the fear of stopping prematurely will tilt the balance towards a final rate hike,” said Carsten Brzeski, global head of macro research at ING. Martin Arnold