ECB weighs lifting rates to record high even as economy slows. On Thursday, the European Central Bank will decide whether to boost its benchmark interest rate to a record high in its last move against inflation or take a hiatus if the economy worsens.

The eurozone’s 20 central banks confront a problem. After nine straight rate rises, prices are increasing at more than double the 2% objective and are not likely to slow for two years.
Higher borrowing prices throughout the globe and China’s economic malaise are hurting economic growth, making a euro zone recession likely.

Analysts and investors had been leaning toward an ECB rate hike pause until Reuters reported on Tuesday that the central bank will lift its inflation prediction to more than 3% next year, supporting the case.

The 2024 prediction was critical for policymakers to decide whether inflation, now over 5%, would return to goal or stay high.

“The inflation momentum is simply too strong for the ECB to pause,” said Danske Bank economist Piet Haines Christiansen.

Most experts in a Sept 5-7 Reuters poll predicted the ECB to maintain rates constant this week, but money markets now forecast the final rise in a cycle that started in July 2022. 0#ECBWATCH

Unlike the ECB, markets have completely priced in unchanged rates at next week’s U.S. Federal Reserve meeting, which began hiking rates earlier and has climbed higher.

ECB bank deposit rates will reach 4.0% on Thursday, the highest since the euro was introduced in 1999, with a 25-basis-point hike.

A record low of minus 0.5% existed 14 months ago, forcing banks to pay to store their cash with the central bank.

Thursday was a now-or-never time for UniCredit analysts to raise borrowing prices.

“If the ECB does not hike, it will sound hawkish and try to convince financial markets that rates could rise at a future meeting,” they said.

“We doubt this will be possible and expect that holding rates steady today would end the tightening cycle.”

NEW PREDICTS

A raise this week is expected to be justified by strong inflation, including underlying measures that take out volatile components, and a recent oil price spike threatening a fresh acceleration.

But the fast tightening cycle has already affected the eurozone economy twice as sharply as the ECB’s banking sector stress tests.

Lending to enterprises and consumers has plummeted due to increasing borrowing rates in the industrial sector, which requires more capital.

Services are also struggling after a short tourist boom post-pandemic.

Multiple estimates show Germany, the euro zone’s largest economy, in an industrial depression and headed towards recession.

The ECB is anticipated to lower its growth predictions this year and next Thursday, prompting some analysts to recommend delaying rate hikes this month.

“While core inflation is only showing tentative signs of easing, the growth outlook has darkened quickly, implying less tightening,” Natixis analyst Dirk Schumacher said.

After its rate rises finish, the ECB may debate whether to collect more of the cash it poured into the financial system via stimulus programs over the previous decade, but no decision was anticipated this week.

The ECB will set rates at 1215 GMT. News conference by ECB President Christine Lagarde at 1245 GMT.