Under the pressure of record high inflation, the European central bank (CEB ) will hold an interest rate decision-making meeting on Thursday (21st). Scientists generally expect a 1-yard rate hike, but Bloomberg News warned that the possibility of a 2-yard rate hike cannot be ignored.
The ECB ended quantitative easing (QE) measures in early July, paving the way for higher interest rates and curbing record-high inflation. Inflation in the euro zone rose to an annual rate of 8.6% in June, the highest since the euro hit the road and well above the ECB’s 2% target.
Most economists currently expect that the ECB will raise the deposit rate, which is now minus 0.5%, by 1 yard this week to minus 0.25%. But Bloomberg News reported that the market still could not completely rule out the possibility of a rate hike of 2 yards at a time.
Arguments for a 2-yard rate hike
including soaring inflation, the euro falling below parity against the dollar, and the market’s perception that policymakers are behind the curve, the ECB must increase its credibility. The reasons for the opposition include the ECB’s commitment to raise interest rates by 1 yard, the threat of economic recession has risen, and the political situation in Italy has been in turmoil. So far, only a few officials have publicly advocated raising interest rates by 2 yards, and most officials believe that a smaller rate increase is more appropriate.
ECB President Christine Lagarde has said that the goal is to get interest rates out of negative territory by the end of September, but she also described a one-stop rate hike as an “intent” and no decision has been made, insisting that ECB decisions still depend on data.
At a time when central banks are aggressively tightening monetary policy, the ECB must balance the threat of a debt crisis, the risk of runaway inflation, and fears of recession. However, economists pointed out that in hindsight, the ECB’s past tightening schedule was too slow and too late. After the latest inflation data is released, if the ECB cautiously raises interest rates by only one yard, it may lead to market disappointment, and some officials may Drive accelerated action.
