European Central Bank Will Raise Interest Rates to Curb Skyrocketing Inflation

The European Central Bank (ECB) will meet again on Thursday for an interest rate decision. Interest rates will certainly be raised further to curb the sky-high inflation in the eurozone.

But the key question is how big the interest rate hike will be.

A major intervention (+75 basis points) was already assumed, but doubts struck the day before the decision again. However, that expectation is somewhat tempered in the financial markets, according to the financial news agency Bloomberg on Wednesday.

Raising interest rates makes borrowing more expensive, and demand should also fall. That should cool the European economy and prices. In August, inflation in the eurozone rose to 9.1 percent, while the ECB aims for inflation of around 2 percent.

After years of rate cuts – with even negative deposit rates for banks that parked money at the ECB – the central bank turned its back on this summer. The first rate hike (+50 basis points) in 11 years was announced in July. In addition, the penalty interest that banks had to pay was abolished.

According to Bloomberg news agency, the financial markets are currently 65 percent anticipating a 75 basis point rate hike. Last week it was more than 80 percent. There is the energy crisis in which Russia is taking an ever tougher stance. In addition, factory orders in Germany have already fallen for six months in a row, so fears of a recession in the eurozone are growing.

Germany’s two-year yield – which is traditionally the most sensitive to interest rate decisions – also fell below 1 percent on Wednesday.