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ECB will raise interest rates in July

The ECB intends to raise the base rate by a 0,25% in July and expects to take a further step in this direction in September.

In our article on the EUR/JPY currency pair, we reported that everyone is waiting to see if the assumptions regarding the European Central Bank (ECB) rate hike will be confirmed. Now, this move has been confirmed and interest rates will be raised by 0.25% in July.

The ECB last raised the base rate in 2011. This policy change shows us that the inflation problem in the economy is a really big issue and needs to be taken seriously.

The bank has unveiled new estimates

The bank also raised its inflation estimates today and lowered its GDP estimates. The new forecast calls for inflation to be 6.8% this year, 3.5% in 2023, and 2.1% in 2024, higher than the last forecast in March.

Also above the March estimates are estimates for core inflation. Consumer price inflation excluding volatile energy and food prices. It is expected to average 3.3% this year, 2.8% in 2023, and 2.3% in 2024.

Euro Sign. European Central Bank (ECB)

Related: World Bank fears stagflation and cuts global growth forecast

As for the eurozone economy, the central bank expects real GDP growth of 2.8% this year, 2.1% next year, and 2.1% in 2024. Compared to the March forecast, the estimate for this year and next year has therefore been slightly lowered. For 2024, on the other hand, it has been raised slightly.

At the same time, the central bank’s asset purchases are expected to be significantly reduced, which should correspond with the earlier statement. You can read more on this topic in our earlier article.

Another hike in September?

The market expects the possibility of another rate hike in September. ECB officials did not refute this at today’s meeting.

“If inflation persists or worsens in the medium-term outlook, a more significant hike will be appropriate at the September meeting. High inflation is a big challenge for all of us.”

The ECB is also resuming for the first time since the covid-19 pandemic the tradition of away meetings, which until then were held twice a year outside Frankfurt, where the ECB is based. Today’s meeting is in Amsterdam.

Bruno is an Investment enthusiast with several years of experience in the industry. He enjoys following the latest news and technology trends...

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