Markets widely suggest that the bank will decide to raise interest rates for the seventh time in a row, especially since the increase in the consumer price index is still above the 2% level that the bank has set itself the goal.
The bank had previously raised interest rates by a total of 3.5% since July last year to control rising food and energy prices, which rose dramatically after the outbreak of the Ukraine crisis. at the beginning of 2022.
However, the discussion currently centers on the amount of the new increase that the Central Bank will approve: will it be 50 basis points similar to those approved the last three times or will it be limited to 25 basis points?
Analysts expect an increase of only 25 basis points, given the slowdown in inflation and stable expectations of the twenty countries adopting the single currency, the euro.
Figures released by the European Statistical Office “Eurostat” on April 28 showed that gross domestic product in the euro area increased by 0.1% in the first quarter of 2023 compared to the previous quarter, after remaining unchanged in the last quarter. 2022. He remains modest. , and European officials saw it as evidence of the bloc’s economy’s resilience in the face of the global energy crisis.
Two options are on the table
Many economic figures expected on Tuesday, including preliminary estimates of inflation in April, could prompt a change in calculations. ING Group economic analyst Carsten Brzeski believes that “an interest rate hike of 25 basis points or 50 basis points are two options on the table”, speaking There is a debate growing between “hawks” (which are members who support monetary policy tightening) and “doves” (which are members who support monetary policy easing) regarding the impact of each of the two increases on the economic situation, and taking into account this sharing on the amount of the exercise, the increase may reach 25 basis points.
While Germany’s slowing inflation could point to a similar CPI trend elsewhere in the euro zone, higher-than-expected inflation should settle the ECB debate in favor of the “hawks” calling for interest rates. higher interest.
And Alfred Kammer, director of the International Monetary Fund’s Europe department, on Friday urged the continent’s central banks to move forward to raise the cost of borrowing and “kill the monster” of inflation.
Prices in the euro zone rose 6.9% in March from a year ago, but remain below the record “10.6%” recorded in October, and central bank officials fear that the Core inflation, excluding food and energy price volatility, does not remain elevated.
The main interest rates of the European Central Bank are currently the highest since 2008.
It’s not yet time to stop
On the eve of the European Central Bank’s decision, the US Federal Reserve is expected to reveal its recent interest rate decisions, as it is expected to approve a 25 percentage point hike.
Ahead of their last meeting in March, European monetary policymakers were called upon to drop a previously announced hike, given market turmoil sparked by the collapse of three US banks and the acquisition by Swiss bank ‘UBS’. of its competitor Credit Suisse under pressure from the authorities for fear of its collapse as well, and raised fears of a wider financial crisis.
However, the European Central Bank insisted on its plan to raise interest rates by 50 basis points, while insisting that banks in the euro zone are stable and well capitalized, but market turbulence has may have prompted some central bank policymakers on the continent to study the cost of an unprecedented monetary policy tightening endorsement.
European Central President Christine Lagarde warned last March that recent tensions around the banking sector posed “new risks” threatening the economy, and said that “these tensions increased new risks and made risk estimates more ambiguous”. , speaking of “no more doubt” when it comes to Continental Bank’s expectations.
The European Central Bank is expected to release lending data on Tuesday that could indicate whether recent unrest has prompted banks to refrain from lending, but that unrest has subsided significantly and European Central Bank officials have recently committed to continue with the tightening policy.
ECB Chief Economist Philip Lane said in an interview in April that current data “indicates that we should raise rates again”, adding: “Now is not the time to stop” .
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