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Inflation increases pressure on ECB

It is expected that the policy meeting of the European Central Bank (ECB) will take place on June 9, amid the inflationary in Europe is reaching a record high. A rate hike for the first time in many years by the ECB is currently a matter of concern for investors.

Newly released figures show that the inflation rate in the Eurozone in May increased by 8.1 percent year-on-year in 2021, the highest level since the euro was introduced. circulating and is four times higher than the ECB’s inflation target. This is expected to increase pressure on ECB officials to act soon. However, most experts believe that a rate hike will only take place in July.

“There is little chance that the ECB will conduct its first rate hike in years, shortly after this meeting. The rate hike will take place in July and is a notable turning point,” said Mr. Robert Halver, Capital market analyst, Baader Bank, review.

Inflation increases pressure on the ECB - Photo 1.

Many farmers in Italy have to increase the price of food due to high input costs. (Photo: Euractiv)

In general, economists and investors still predict a 25 basis point rate hike in July. However, the high inflation rate also raised expectations of a move. stronger hand.

“ECB needs to conduct interest rate hikes to cope with inflation, but the magnitude of the increase will not be large, so as not to cause serious economic harm,” said Mr. Robert Halver.

“A number of Governors are poised for a 50-basis-point increase. The ECB still appears to be underestimating inflation. We expect support for a 50-basis-point increase to grow. up this summer,” said Mark Wall, Chief Economist, Deutsche Bank.

The ECB is expected to end the era of negative interest rates next September. However, like many other central banks, the ECB’s chances of normalizing monetary policy are now narrowed due to weakening economic growth.

The latest forecasts released by the ECB today (June 9) may indicate a sharp downward revision to growth, while inflation forecasts will be raised. This will leave policymakers facing a difficult choice between fighting inflation and promoting economic growth.

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