Hike rates

European Central Bank set to hike rates for first time in 11 years

The European Central Bank is set to make its first interest rate hike since 2011 this week, but markets are already moving quickly to focus on a path of higher rates beyond Thursday as markets economic outlook is darkening.

This outlook is darkening day by day as inflation continues to accelerate and growth slows sharply.

“The compromise facing the ECB is tougher than any of the other major central banks,” said Silvia Ardagna, head of European economics research at Barclays.

No matter how much European Central Bank officials reject the prospect of starting interest rate hikes with a half-point move this week, there’s still a case for it.

Soaring inflation, the euro falling below parity with the dollar and the perception that policymakers are behind the curve are just some of the reasons for Thursday’s sharp rise.

Arguments against include the ECB’s commitment to a quarter-point hike, market acceptance of that, shaky growth prospects and Italian political unrest.

“It’s true that they communicated something else,” said Zuercher Kantonalbank economist Martin Weder, who says hope persuaded him to make one of the only half-point forecasts. “The signs clearly point

normalization – and the ECB has not even started.

President Christine Lagarde described a quarter-point as an “intention” while warning that no decision has been made.

Almost all economists anticipate such an outcome, as do investors.

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