The European Central Bank (ECB) holds a regular meeting on Wednesday-Thursday, following which it is expected to announce plans for the first since 2011 increase in the key interest rate. The ECB will also release new economic forecasts that will likely show that inflation in the euro area will not drop to the 2% target during 2024, writes Bloomberg. Experts generally predict that the European Central Bank on Thursday will announce its intention to complete the asset buyback program in June and raise the deposit rate, which is currently minus 0.5%, in July. The rate has been below zero since 2014. Experts will wait for signals from the ECB on how much it plans to raise the rate in July, and at what pace it intends to increase it in the future, notes Dow Jones. Quotes of futures for the rate level show that the market estimates the probability of 50% rate hike by the European Central Bank by 50 basis points (bp) at the July meeting at 50%. The last time the ECB raised rates was 50bp. in 2000. “The most likely outcome of the meeting will be an announcement by the Central Bank that it will start raising rates in July and bring it to zero in the third quarter,” said Mohit Kumar, EMEA Markets Economist at Jefferies. “The most important thing to watch is the tone of statements. ECB regarding the pace of rate hikes in July and September. ECB President Christine Lagarde probably won’t rule out the possibility of raising the deposit rate by 50 bp all at once, but he won’t hint at it either, Kumar said. The growth rate of consumer prices in the euro area in May accelerated to a record 8.1% in annual terms. High inflation forced even the most dovish members of the ECB’s governing board to support the need to raise rates. At the same time, the central bank should strive to restore price control without pushing the eurozone economy into recession and without provoking panic in the bond markets of the most vulnerable countries in southern Europe, writes the Financial Times. “Lagarde is in a difficult position and she understands this,” said Klaus Adam, an economics professor at the University of Mannheim who is an adviser to the German finance ministry. won’t work?” Lagarde has previously said that “the deflationary momentum that has been observed in the euro area over the past decade is unlikely to return,” even if the problem of rising energy prices is overcome and supply chains are restored. ECB officials are more concerned about inflation than economic growth, says Pimco portfolio manager Constantine Veit. The Central Bank is likely to decide to complete the asset buyback this month and signal that it intends to raise the rate in both July and September, the expert said. “The market will be waiting for the slightest hint from the European Central Bank about what will happen after the summer, when the policy of the era of low inflation will be curtailed,” said Matteo Cominetta, chief economist at Barings Investment Institute. Experts do not rule out that the ECB will make it clear at the end of the June meeting that it is ready to support the debt markets of the eurozone countries in the event of a sale of their bonds. The bulk of the 25-member board of governors is expected to support a proposal to set up a new bond buyback program if necessary in case of a sharp increase in borrowing costs for countries such as Italy, the FT notes. Source: FINMARKET.RU

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