The European Central Bank is poised to raise interest rates again on Thursday to tackle inflation, but the sudden collapse of a US lender has fuelled concern about the health of the banking system as borrowing costs climb higher.
The ECB’s 26-member governing council will “very, very likely” raise interest rates by another half a percentage point at its meeting in Frankfurt, president Christine Lagarde said last week.
It would be the sixth successive increase, leaving the ECB’s three main rates 3.5 percentage points higher since July.
The ECB has hiked rates at an historically fast pace to cool consumer prices after energy and food costs shot up in the wake of Russia’s war in Ukraine.
With Thursday’s decision “a done deal”, investors will be more interested in clues about the ECB’s future moves, said ING bank economist Carsten Brzeski.
He predicts a “heated discussion” between dovish policymakers wanting to slow down rate hikes to ease the pain of higher borrowing costs, and “hawks” pushing to stay the course as inflation remains well above the ECB’s two-percent goal.
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