ECB Set for First Rate Hike in Nearly Three Years

The European Central Bank is widely expected to raise interest rates on Thursday for the first time in nearly three years, after inflation in the euro zone rose above 3% on higher energy costs triggered by the Iran war.

The benchmark deposit rate is expected to rise to 2.25% from 2.0%. ECB officials see the move as a precautionary step to keep inflation expectations anchored and protect the bank’s credibility after its delayed response to the 2022 inflation shock.

Several analysts describe the expected move as an “insurance hike” that could be reversed if price pressures fade. Others warn that the ECB risks a “policy mistake” by tightening monetary policy when growth is very weak.

Critics argue that inflation is being driven mainly by external factors, especially energy costs, rather than overheated domestic demand. Despite the uncertainty, financial markets still expect further rate hikes over the next year.

(reuters, mja)