ECB to raise rates again by 0.75% this week, say economists

Christine Lagarde, president of the European Central Bank. Picture: Alex Kraus/Bloomberg

The European Central Bank is anticipated to hike interest rates by another 75 basis points on Thursday, according to economists.

This will be the ECB’s third interest rate hike this year in an effort to cool down consumer prices and stop them from getting out of control.

“The ECB will focus on the extremely high rate of inflation and continue raising interest rates as the economy weakens,” said Bloomberg economists.

“We look for another 75 basis points hike in October and the deposit rate to end the tightening cycle at 2.25% in February,” they added.

The rate hike will impact hundreds of thousands of homeowners as their mortgage repayments will increase significantly as a result.

There are around 475,000 Irish tracker and variable rate borrowers who are affected by ECB rate rises.

AIB was the first main Irish bank to pass on the cost of the ECB rate hikes and Bank of Ireland and Permanent TSB are expected to follow suit, especially as more increases are planned.

AIB said it will increase its fixed-rate mortgage products by 0.5% across its AIB, EBS, and Haven brands.

Highest level since 2011

The previous ECB rate hikes this year has raised its main refinancing rate to 1.25%, the highest level since 2011.

Market analysts expect ECB interest rates to peak at around 3%, with some predicting a peak of 3.25% by the middle of next year.

While ECB policy makers focus on their rate decision this week, data on economic growth from around the eurozone will also draw attention.

Today, surveys of purchasing managers for October are due, while on Friday, third-quarter GDP will be published in three major countries. Germany’s is likely to show a contraction while the French and Spanish economies probably slowed markedly.

Sweden, which now faces a housing slump as severe as it did during the financial crisis, is likely to have seen GDP shrink in the quarter too. Those data are due the same day.

Also on Friday, Russian policy makers are likely to put easing on hold as inflationary pressures pick up and growing uncertainty surrounding the war in Ukraine hurts confidence.

- Additional reporting by Reuters, and Irish Examiner