European Central Bank Poised to Hike Rate by 50bps as Bloc Enters Recession

A Reuters poll revealed that the European Central Bank is likely to raise its deposit rate by 50 basis points at its upcoming meeting on December 15 to 2.00%, despite the euro zone economy almost being in recession, in order to combat inflation running at five times its target.

The European Central Bank (ECB) has raised its benchmark deposit rate by 200 basis points since July, bringing it to 1.50%, as part of its ongoing battle to combat inflation.

According to a Reuters poll conducted between December 5 and 8, banks will earn 2.00% on deposits after officials meet on Thursday, the highest rate since 2009. The refinancing rate will rise 50 basis points to 2.50%.

It is also largely anticipated that the U.S. Federal Reserve would shift to a 50 basis point move at the conclusion of its policy meeting on Wednesday, the day before the ECB decision, following four consecutive 75 basis point rises.

“The ECB’s meeting next week is one of the few meetings at which the central bank will take a decision after the Federal Reserve and not before it. A slowing of the Fed’s rate hike pace could have an impact on the ECB as well,” said Carsten Brzeski at ING.