According to ChainCatcher, the European Central Bank is expected to announce an interest rate increase on Thursday. If confirmed, it would mark the ECB’s first rate hike since 2023. The expected policy move comes as the eurozone faces an energy price shock triggered by conflict in the Middle East, with higher energy costs feeding into renewed inflation pressure.
Deposit rate expected to rise to 2.25%
Markets broadly expect the ECB to raise its deposit rate from 2% to 2.25%. The anticipated adjustment is aimed at containing upward inflation pressure caused by constraints on energy supply. The source information points to tensions around the Strait of Hormuz as a factor behind tighter energy conditions, while rising energy prices have become a main driver of the latest increase in eurozone inflation.
Data show that eurozone inflation rose to 3.2% in May, clearly above the central bank’s 2% policy target. With inflation already running above target, the rise in energy prices has increased the pressure on monetary policymakers. The ECB is therefore facing a decision that sits between two competing concerns: restraining inflation and managing an economy that is already under strain.
Policy decision comes as growth weakens
The rate decision is taking place against a backdrop of pressure on eurozone economic growth. The eurozone economy contracted in the first quarter, and some economists have warned that higher interest rates could further weigh on growth and consumer confidence. That creates a more difficult policy setting for the ECB, because tightening monetary policy to address inflation may also add pressure to economic activity.
Analysts cited in the source noted that the Federal Reserve and the Bank of England have not yet moved in step with tighter policy. The ECB’s earlier action may reflect greater sensitivity to inflation driven by energy prices. Markets will focus on ECB President Christine Lagarde’s remarks after the decision to assess whether the move marks the beginning of a new tightening cycle.