Expected Rate Increase
The European Central Bank is widely expected to raise its deposit rate by a quarter of a percentage point at its monetary policy meeting on Thursday, according to a Reuters survey of 65 economists and market pricing showing a 98.9% probability. This would lift the deposit rate from 2.25% to 2.50%, marking the second hike after a June increase and a July hold.[S1][S2]
The move comes as eurozone inflation accelerated to 3.3% in August, the fastest pace in nearly three years and well above the 2% target. Energy prices surged 14.3%, driven by Middle East tensions and rising oil and gas costs, which are key factors in the inflation spike.[S1][S2]
Hawkish Stance Among G7
The European Central Bank is set to implement its second consecutive rate increase, a decision that appears nearly certain. This action would reinforce its status as the most aggressive among G7 central banks, especially when compared to the more accommodative approach of the US Federal Reserve. The move comes as eurozone inflation reached 3.3% in August, the highest in nearly three years, well above the ECB's 2% target. Officials are mindful of past criticism for reacting too slowly to the 2022 cost-of-living crisis and are now emphasizing the need for decisive action.[S1][S2]
Attention now turns to whether policymakers will support another rate hike later this year. Lithuanian central bank chief Gediminas Simkus stated that a single increase in September would not be enough, while his German counterpart Joachim Nagel expressed a more cautious view. Market expectations already include a possible move in December, and financial institutions such as JPMorgan and Société Générale have adjusted their forecasts to anticipate an additional rise. The decision will be made after the summer break, alongside new quarterly projections, amid ongoing geopolitical tensions and rising fuel costs.[S1][S2]
