The European Central Bank (ECB) is holding a monetary policy meeting on Thursday, which could lead to another interest rate hike, which analysts predict will amount to 25 basis points.
In early May, the institution led by Christine Lagarde raised interest rates by 25 basis points to 3.75%, an easing that was supported by most board members.
Before that, the ECB had raised interest rates by 50 basis points.
The rate on the main refinancing operations rose to 3.75%, the rate on the deposit facility to 3.25% and the rate on the marginal lending facility to 4%, the highest level since October 2008.
However, according to the minutes of the last meeting, some members of the Governing Council defended a further 50 basis point increase to manage inflation risks, a decision that “would show more clearly that the determination […] achieving price stability in the face of high and more persistent inflation”.
Given this scenario, the ECB is now expected to raise interest rates by another 25 basis points and maintain a restrictive policy until inflation returns to 2% levels, the Singular Bank pointed out.
In a ‘research’ note, BPI also predicts a 25 basis point increase and that the deposit rate will be set at 3.50%.
“The accumulated increases since July 2022 will thus increase to 400 basis points, but the June move assumes a more cautious pace and that will allow a better calibration of the appropriate degree of tightening that monetary policy should adopt”reads an information note from the financial institution.
For BPI, it is also likely that the ECB will indicate that it can make another increase in July, “following the strategy of gradualism and prudence, always making decisions dependent on the evolution of the data”.
In its May summary, the Competitiveness Forum maintained its expectation that the ECB will “raise rates at least twice in this cycle of benchmark rate hikes”.
Along the same lines, ATL Capital takes another rate increase for granted, which could be repeated next month.
Analysts at Nomura bank (Luxembourg) also expect an increase in this order and expect the ECB to slightly lower its projections for GDP growth.
The ECB will not start rate cuts until the fourth quarter of 2024he stressed, quoted by the EFE bureau.
On June 5, the president of the ECB said that if euro governments do not withdraw support for the energy crisis, inflationary pressures will increase, requiring “a stronger monetary policy response”.
“As the energy crisis fades, governments must swiftly and collectively reverse related support measures to avoid mounting inflationary pressures over the medium term, which would require a stronger monetary policy response.”stated Christine Lagarde.
The ECB started raising its interest rates in July last year, having previously approved multiple increases of 50 and 75 basis points.
In the statement released in May, the institution gave no clear indication on the continuation of the cycle of rising interest rates.
The future decisions of the ECB “will ensure interest rates remain at sufficiently restrictive levels to allow inflation to return quickly to the medium-term target of 2%”indicated the text.
Source: DN
