Will rates go higher in Europe this week? Central banks confront stagflation threat
Central banks in Europe are facing the challenge of stagflation as they consider potential interest rate hikes. The European Central Bank (ECB) is expected to closely monitor inflation data and may implement a modest increase in rates in the coming months. Economists suggest that while a rate hike is likely, the ECB will maintain a cautious approach and avoid pre-committing to future increases.
- ▪The ECB may raise interest rates by 25 basis points in June, bringing the key rate to 2.25%.
- ▪Economists believe the ECB will wait for sufficient data before making any decisions on rate hikes.
- ▪Santander's CFO indicated that while higher rates are anticipated, the increases will be moderate.
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Rakau added that the data needed to show sufficient evidence of second-round effects to push the ECB into action, but the bar is low."We expect signs of rising inflation expectations, a resilient labor market, contained economic damage and accelerating core inflation to trigger rate hikes in June and July," he said, noting: "This modest tightening balances the inflicted economic costs and the ECB's aim of capping second-round effects."The ECB's forward guidance will be closely watched on Thursday, as ever.
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