Image: ANDRE PAIN (AFP)
It would be the eighth increase in a row since July 2022. Economists assume that the euro guards around central bank chief Christine Lagarde will raise the key rates by a quarter of a percentage point, as in May.
The deposit rate, which sets the trend on the financial markets and which financial institutions receive from the central bank for parking excess funds, would thus rise from 3.25 percent to 3.50 percent. That would be the highest level in 22 years. Overall, since last summer the euro watchdogs have raised the key interest rates by a total of 4.00 percentage points at a rapid pace.
Lagarde recently reaffirmed the determination of the central bank to continue the fight against inflation in the Economic and Monetary Affairs Committee of the European Parliament. The ECB’s decisions would ensure that interest rates rose to a sufficiently high level for inflation to return to the 2% target in time.
Inflation far above target
Inflation in the euro zone fell sharply in May. At 6.1 percent, however, it is still well above the target set by the central bank. In addition, underlying price pressures, which exclude food and energy, are only just beginning to moderate slightly.
Economists therefore expect that the ECB will send the message that its work is not yet done. However, Lagarde is not expected to be very specific on this at the post-rate press conference. From the point of view of the experts, it will probably emphasize the data dependency of every step. New economic and economic forecasts by the ECB economists, which will be presented to the currency watchdogs at the meeting, should provide important clues for the future course. The economy in the 20-nation community slipped into recession in the winter, and economic experts currently expect only modest growth for the year as a whole.
This economic situation is not easy for Lagarde & Co. Because the central bank wants to avoid as far as possible that economic activities are stalled in the course of its tightening course. In Germany, the trade unions are already warning that the ECB should not turn the interest rate screw too high. Many economists are assuming that the ECB will hike rates again by a quarter of a percentage point in July after the move expected today. From the economists’ point of view, however, it is unclear how she will proceed after that. In the USA, the US Federal Reserve has taken a break after ten interest rate hikes in a row. At the same time, however, she signaled that she was considering up to two smaller steps upwards.
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