European Central Bank set to inch closer to the end of its hiking cycle
This week the European Central Bank (ECB) is expected to increase its benchmark policy rate by 25 basis points. ECB President Christine Lagarde announced the new rate decision after new inflation data came out. Despite concerns over uncertainty regarding the inflation and growth outlook, the ECB has insisted that future rate decisions will be strictly data dependent. Fritzi Köhler-Geib, a chief economist with German bank KfW, stated that weaker economic data, significant easing on energy markets and the recent sharp drop in inflation support an early end to the interest rate cycle. However, growing wage pressure and falling, but still high, inflation expectations calls for caution. Recent inflation data shows that price dynamics are abating, but consumer price rises still remain too high. With wage pressures still building, the new staff projections from the ECB due Thursday alongside its rate decision will be key.
FAQs:
What is the European Central Bank (ECB)?
The European Central Bank is the central bank of the 19 European Union countries which have adopted the euro.
What is the benchmark policy rate?
The benchmark policy rate is the central bank’s main tool for implementing monetary policy. It is the rate at which the central bank provides liquidity to the banking system and influences the interest rates consumers and businesses pay on loans.
Why is the ECB increasing the benchmark policy rate?
The ECB is increasing the benchmark policy rate by 25 basis points due to new inflation data and concerns over the inflation and growth outlook.
Will all future rate decisions be strictly data-dependent?
Yes, the ECB has insisted that all future rate decisions will be strictly data-dependent.
What are the risks for the terminal benchmark rate?
The risks for the terminal benchmark rate are tilted to the upside of 3.75%.
The European Central Bank is nearing the conclusion of its cycle of interest rate increases.
The European Central Bank (ECB) is expected to raise its benchmark policy rate by another 25 basis points this week, according to recent reports. ECB President Christine Lagarde announced the new rate decision on Thursday, following new inflation data. The bank insists that all future rate decisions will be strictly data dependent, given uncertainty weighing over the inflation and growth outlook. Recent inflation data shows that price dynamics are abating but consumer price rises are still significantly high. Moreover, the euro area has dipped into a technical recession, and the growth picture has a lot of uncertainties attached. The direction of the economy might get more attention, as uncertainty over inflation and growth continues.