ECB to use new measures to curb inflation

The European Central Bank (ECB) will meet again on Thursday to decide on interest rates. In addition to this, the central bank will consider how to wind down 5 trillion euros ($5.3 trillion) in bond holdings, which clearly points to more tightening.

ECB hawks want to begin quantitative tightening (QT). Dovish rate-setters at the European Central Bank that fret about a global recession could use this to their advantage to secure lower rate hikes. Economists are saying that the ECB is likely to raise rates by 0.5% at Thursday's meeting. By contrast, the ECB announced a rate hike of 0.75% at its last two meetings.

It wouldn’t be the first such compromise. The bank went for a bigger rate hike in July. Alongside that decision, it introduced a new tool to keep bond markets in check as monetary aid is withdrawn. 

However, rates could approach levels soon that will hurt the fragile EU economy. It is also of a high importance that GT is considered uncharted territory for the ECB and European markets.

The survey of economists by Bloomberg shows forecasters expect another rate hike of 0.5% in February. If the ECB opts for the hike, the deposit rate will peak at 2.5%. In their view, QT is likely to start in the first quarter of 2023.