Frankfurt: The European Central Bank is expected to deliver another interest rate increase on Thursday, but analysts are divided on how big the hike will be against a backdrop of stubborn inflation and market turmoil.
There is little doubt the central bank will hike borrowing costs for the seventh consecutive time as consumer price increases are still way above its 2 per cent target.
The Frankfurt-based institution has already lifted rates 3.5 percentage points since July last year to tame energy and food costs that surged after Russia attacked Ukraine.
But there is debate about whether the ECB will opt for a 50-basis point hike - as it did at its previous three meetings - or downshift to 25 basis points.
Currently many analysts are betting on a quarter point hike, due to slowing inflation as well as a stable outlook in the 20-nation currency club.
Data last week showed the eurozone economy expanding 0.1 per cent in the first quarter.
While modest, EU officials said the figure indicated “resilience” against the challenging backdrop of the energy crisis. However, several data releases due on Tuesday - including a first estimate of eurozone inflation for April - may change calculations.
“Both a 25-basis point and a 50-basis point rate hike seem to be on the table,” said ING economist Carsten Brzeski, adding there was a growing debate between “hawks” and “doves” about the impacts of tightening.
But he added that given the divide within the ECB, a quarter point increase would be a “typical European compromise”.
Still, if eurozone inflation comes in higher than expected, the “hawks” may yet win the argument for a larger hike.
But easing inflation in Germany for April may be the harbinger for lower consumer prices too elsewhere in the eurozone.
