With inflation already approaching double digit territory, it is now at risk of getting entrenched above the ECB’s 2% target, requiring rate hikes even if that slows – or crashes – an economy already suffering from the impact of Russia’s war in Ukraine.
Economists polled by Reuters predicted only a 25 basis point increase but most said the bank should actually hike by 50 basis points, lifting its record low minus 0.5% deposit rate to zero. When rates rise, borrowing costs on the bloc’s periphery often increase disproportionately and the ECB has promised to fight this sort of fragmentation with a new instrument.
The ECB announces its policy decision at 1215 GMT, 30 minutes later than previously, while Lagarde’s news conference is scheduled for 1245 GMT, 15 minutes later than in the past.Along with the rate hike, the ECB is also set to signal a string of subsequent increases.It is also expected to pledge further moves, though it is less likely to make firm commitments.
Raising rates in a downturn is controversial, however, and could magnify the pain as businesses and households face higher financing costs.
This one is raising the Repo Rate almost for the 20th time now since he took over.