In May, the ECB will raise interest rates again

Interest rate hike at the May meeting European Central Bank she is sure. Its scale may depend on inflation data from the largest European economies released this week.

A rate hike is certain

In May, the European Central Bank (ECB) will have to raise interest rates again, but "the scale of this movement is still under discussion" Philip Lane, chief economist at the ECB, said on Tuesday.

Economists have no doubts as to how much the European Central Bank will raise interest rates in the euro zone at the meeting on May 4. At least those polled by Reuters. As many as 57 out of 69 economists asked, i.e. 82,6 percent. of all respondents believe the ECB will raise interest rates by 25 basis points. Others predict an increase of 50 basis points. No one assumes a pause in the tightening of monetary policy in the Eurozone.

Fulfillment of the above forecasts would mean that the deposit rate would increase to 3,25% at the May meeting. from 3 percent currently, and the refinancing rate to 3,75 percent. from 3,50 percent And this will not be the end of the increases. According to the quoted Reuters poll, economists expect one more rate hike at the June meeting.

Inflation in focus

What else could affect market expectations regarding the results of the ECB meeting in May are data on inflation and GDP for the largest European economies published on Thursday and Friday. Clearly higher-than-expected inflation in Europe in April, coupled with better-than-expected GDP data for the first quarter of this year, could increase expectations for an increase by 50 basis points in May. However, this relationship will not work the other way around. Even when inflation fell sharply and GDP data turned out to be strongly recessive, the chances that the ECB will not raise interest rates in May are still small. On the other hand, expectations for a rate hike in June would probably fall.

The ECB will raise interest rates longer than the US Fed, and then lower them more slowly. At least that's what investors expect now. This should further support the euro against the dollar.

today EUR / USD exchange rate it returned above $1,10, on the way already attacking the $1,1095 level, a level not seen since March 2022. This eurodollar rally is not so much due to the strength of the euro as to the weakness of the dollar. Troubles The First Republic Bank has rekindled concerns about the condition of the US banking sector, damaging the US currency today.

D1 EUR/USD Chart. Source: Tickmill