ECB is expected to raise rates twice more before quantitative tightening begins in early 2023

According to economists’ forecasts, the European Central Bank (ECB) will raise interest rates at least twice more in order to fight high inflation. One of these hikes will be taken as early as next week, with the rate increasing by about 50 basis points.

Some analysts consider that borrowing costs will also be increased by 0.5% at the bank’s meeting in February. In this case, the deposit rate will peak at 2.5%. In addition, in the next fiscal quarter, the ECB might begin to get rid of trillions of euros in bonds that were acquired during the crisis. This process is called “quantitative tightening” (QT).

Although Europe is now facing the strongest monetary tightening in history, some still see these measures as insufficient. The ECB aims at reaching its inflation target of 2%, but the current rate is five times higher than the target. At the same time, the U.S. Federal Reserve (Fed) is also going to slow down the monetary tightening.

Ulrike Kastens, an economist at investment company DWS International GmbH, noted that the ECB plans to scale back rate hikes. However, inflationary pressures are likely to remain at the same level. Now the main task of the bank is to gain the market’s support and trust for fighting against inflation.