European Central Bank expected to raise interest rates

The European Central Bank (ECB) is expected this week to raise interest rates for the first time in two and a half years, as an energy shock triggered by the war in Iran pushes inflation higher.

Consumer prices in the eurozone rose to 3.2% in May, above the ECB’s 2% target, CE Report quotes FENA.

Analysts predict that the Governing Council will increase the key deposit rate by 0.25 percentage points on Thursday, from 2.00% to 2.25%.

“Anything other than a rate hike at the ECB meeting would be a major surprise,” said ING economist Carsten Brzeski.

ECB chief economist Philip Lane has already signaled that inflation forecasts will be revised.

This would be the first rate increase since September 2023, when the ECB responded to inflation triggered by Russia’s invasion of Ukraine. However, some economists warn that higher interest rates could further slow the already weak eurozone economy, which contracted by 0.2% in the first quarter, AFP reports.

Allianz chief economist Ludovic Subran said the ECB move is an attempt to signal control over inflation, but that a hike may not be necessary.

Most analysts believe the tightening cycle will be short, with possibly one more increase in July, while the impact of higher energy prices on inflation is expected to remain limited.

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