50 Basis Points Rate Review from ECB

While the European Central Bank's interest rate decision remained on the agenda of global markets, it was noted that the ECB may consider a 50 basis point interest rate hike. With these statements, the euro/dollar parity tested the 1.02 level.

The European Central Bank (ECB) interest rate meeting remains on the agenda of global markets. The European Central Bank will discuss a 50 basis point rate hike at this meeting due to the deteriorating inflation outlook. According to two sources close to the matter who spoke to Reuters, policymakers are also focusing on an agreement to support indebted countries such as Italy in the bond market if they comply with the European Commission's rules on reforms and budget discipline. In recent months, ECB President Christine Lagarde had made statements that left the door open to a rate hike beyond 25 basis points. "If we see that higher inflation threatens expectations, we will withdraw stimulus more quickly," Lagarde said. Lagarde stated that the magnitude of energy and food shocks created uncertainty in inflation and that inflation has started to increase widely in the service sector, noting that inflation pressures may increase and inflation shocks also negatively affect growth. Despite this, she emphasized that they expect positive growth. Days after this statement, it was announced that Eurozone consumer inflation broke a new record with 8.6 percent. European Central Bank Governing Council member Gediminas Simkus said that if the inflation outlook worsens, a 50 basis point rate hike may be in question at the next meeting, "However, if we see a deterioration in inflation, a 50 basis point rate hike for July will also be considered. We need to normalize monetary policy decisively while inflation remains at these high levels and is felt more broadly."