The European Central Bank is expected to raise its interest rates by 25 basis points (a quarter of a percentage point), with the deposit rate at 3.5%, next Thursday, continuing the tightening of its monetary policy.

The increase was announced by the president of the ECB, Christine Lagarde, after the meeting of the governing board in early May, while it was also confirmed last Monday with statements she made to the European Parliament. Lagarde reiterated her assessment that, despite the slowdown in the General Consumer Price Index in the Eurozone, it is not certain that structural inflation, which excludes energy and food prices, has “caught a ceiling”, stressing that interest rate hikes will continue .

The interest at next Thursday’s meeting will be whether Lagarde gives any indication of when the ECB’s rate hike cycle will stop. A relatively large majority of economists polled by Reuters last week insisted there would be another 25 bp hike in July. which will also be the last, with the deposit acceptance rate remaining at 3.75% until the end of the year.

This view is consistent with the latest economic developments in the Eurozone, which entered a recession last winter, albeit a marginal one. New data released by Eurostat on Thursday showed that the region’s GDP fell by 0.1% in the first quarter after a corresponding decline in the last quarter of 2022. Economists estimate that this recession, which is largely due to contraction of the German economy by 0.5% in the first quarter of this year will be short-lived and that GDP will grow by 0.2% in each of the next three quarters until 2023. However, it does not cease to show a significant slowdown in economic activity , which facilitates the de-escalation of inflation.

Indeed, inflation eased in May to 6.1% from 7% in April, although still well below the ECB’s 2% target. It is also important that structural inflation also decreased to 5.3% from 5.6%, but, as was seen from Lagarde’s statements, there is a waiting attitude in Frankfurt as to whether there will be a similar continuation.

The meeting of the Fed

The US central bank (Fed) also meets next week, specifically on Wednesday, i.e. one day before the ECB. Economists expect the Fed to leave interest rates unchanged after 10 straight hikes that pushed them to 5% to 5.25%. This assessment is reinforced by some statements of its president, Jerome Powell, last week, as well as by recent data showing a slowdown in economic activity in the US.

However, the degree of certainty for the decision of the American central bank is not the same as in the case of the ECB. There was a significant minority of economists in the Reuters survey who forecast at least one more hike in the Fed’s key interest rate, most likely in July.

Also, Wednesday’s increase in interest rates by Canada’s central bank – which had frozen them since January – after seeing inflation hover between 4% and 5% during that time, unnerved markets as it showed that it should not to take for granted the constant de-escalation of prices.