ECB Seen Hiking Rates Next Week, But May Signal No Further Tightening
The European Central Bank (ECB) is likely to raise interest rates next week but may stop short of signaling further hikes, according to economists surveyed by Bloomberg. The overwhelming majority of respondents expect a quarter-point increase in the deposit rate to 2.5% on Thursday and for it to stay there through 2027.
This diverges from market expectations, which are pricing about three more hikes by mid-next year. Traders are betting on further tightening as oil prices surge towards US$100 a barrel and natural gas reaches levels last seen in 2023.
Economists agree that inflation at a three-year high has not yet shifted medium to longer-term expectations or affected workers' pay, but this could change. Executive board member Isabel Schnabel warns of the need to prevent second-round effects early, while others like Lithuania's Gediminas Simkus and Bulgaria's Dimitar Radev are already thinking ahead to potential further hikes.
The ECB's challenge is in calibrating monetary policy amidst renewed fighting in the Middle East, which threatens to extend a war lasting half a year. Economists foresee an upward revision to the ECB's growth projection for 2026, while the medium-term outlook is set to be confirmed, along with that for inflation.