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ECB expected to raise rates in September amid inflation and energy risks

Markets expect the move to lift the Main Refinancing and Deposit Facility rates to 2.65% and 2.50% respectively, with the euro facing high volatility around the decision and ECB projections.

Reported · Written up by our desk · Central Banks

FXStreet reports the European Central Bank is widely expected to increase the interest rate on its Main Refinancing Operations by 25 basis points to 2.65% and the Deposit Facility rate by 25 basis points to 2.50% at its September decision.

The ECB is scheduled to announce the move on Thursday at 12:15 GMT, with updated economic projections and a press conference with President Christine Lagarde following at 12:45 GMT. Ahead of the event, traders are focused on the central bank’s signals for the future rate path.

The outlook is being supported by ongoing inflation pressures, including a pickup in the Eurozone’s Harmonized Index of Consumer Prices inflation to 3.3% year over year in August, above the ECB’s 2% target. Growth also remains mixed, with Eurozone Q2 GDP up 0.6% quarter on quarter after a 0.2% contraction in Q1.

FXStreet adds that renewed hostilities in the Middle East and a rebound in energy prices continue to fuel inflation concerns and rate-hike expectations. It notes the euro is trading below 1.1650 against the US dollar as markets await any hawkish language from Lagarde that could imply a higher terminal rate.

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