ALBAWABA — The European Central Bank is all but certain to raise interest rates on Thursday as a surprise surge in the Eurozone’s underlying inflation in February left policymakers worrying that price pressures could be overly resilient.
The ECB has hiked rates at an historically fast pace to offset rising consumer prices after energy and food costs skyrocketed after Russia's invasion of Ukraine last year.
The bank’s 26-member Governing Council will "very, very likely" raise interest rates by another half a percentage point at its meeting in Frankfurt, ECB president Christine Lagarde said last week.
Lagarde has vowed to do "whatever it takes" to restore price stability in the Eurozone, saying the Eurozone economy has proved "resilient" to the fallout from the situation in Ukraine as inflation remains well above the ECB's 2-percent goal.
It would be the sixth successive increase, leaving the ECB's three main rates 3.5 percentage points higher since July 2022.
"The ECB is now torn between adding fuel to the fire by delivering the promised hike, and further falling behind in a fight against inflation it is already losing," Antoine Bouvet, senior rates strategist at ING Bank, wrote in an ING Snap along with his colleagues.
"The European Central Bank signaled a 50bp hike at the March meeting and an update to its staff economic forecast suggest the debate about further policy steps will become more heated. That debate is further complicated by fears of US regional banks facing deposit outlflows," Bouvet added.
Analysts expect the ECB's bank deposit rate, currently at 2.5 percent, to peak at 3.5 to 4.0 percent this summer and remain there for some time.
By Thursday, the ECB will be armed with new economic forecasts that will help guide its interest rate decision.
