European Central Bank prepares for battle against inflation

Worries about an incoming recession across the euro zone will be put on hold this Thursday as the European Central Bank (ECB) announces its next big interest rate hike.

With a chorus of policymakers calling for swift and decisive action to tame record inflation across the bloc, running at 9.1 per cent, markets have fully priced in a 50 basis-point move and high probability of a 75 basis-point rise, suggesting the ECB could go either way.

“We think it is a very close call, with good arguments on each side, but ultimately think those advocating for a larger hike will prevail as September offers the best opportunity to send a clear signal of determination,” said Morgan Stanley economist Jens Eisenschmidt. ECB counterparts elsewhere are well under way tightening monetary policy, with the US Federal Reserve opting for two consecutive 0.75 per cent rate increases.

Almost half a million variable and tracker mortgage holders in the Republic are facing into a winter of discontent with increased monthly repayments on their home loans.

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Rising mortgage costs come on the back of surging energy, transport and food prices. The likely half-point rate increase will add about €80 to the current monthly repayments on a typical €300,000 mortgage. Those with trackers are likely to see an almost immediate increase in their repayments. Another element feeding into the ECB’s decision is the current weakness in the euro.

Frankfurt officials are keen to see the euro, which has lost around 8 per cent of its value in the past three months, stabilise.

The euro sank below $0.99 to a new 20-year low on Monday after Russia’s halt to gas supplies down its main pipeline to Europe heightened fears about a deepening energy crisis across the region. That will feed into the desire to try to tame inflation through tightening policy. — Additional reporting Reuters