FRANKFURT, Sept 12 (Reuters) – The European Central Bank expects inflation in the 20-nation euro zone to remain above 3% next year, underscoring the case for a 10th consecutive interest rate hike on Thursday. This was revealed by a person with direct knowledge of the discussions. he told Reuters on Tuesday.
The ECB begins a two-day meeting on Wednesday, but persistently high inflation and growing recession fears have pulled policymakers in the opposite direction, with market expectations either on pause or a 25 basis point decline. Evenly split between additional rate hikes.
An ECB spokesperson declined to comment.
The ECB’s quarterly outlook, due to be submitted to the Governing Council on Wednesday, forecasts inflation to exceed 3% in 2024, disrupting expectations for a modest rate cut, the sources said.
The latest forecast for 2024 is expected to be well above the central bank’s 2% target, and also higher than the 3% forecast in June. This is also higher than the 2.7 percentage point found in a Reuters survey of economists.
The source said the interest rate decision remains a close call and no formal proposal for the meeting has yet been presented.
But closely watched 2024 numbers confirm concerns that reining in inflation may be more difficult than previously thought, further strengthening the case for rate hikes. .
The ECB has raised deposit rates from -0.50% to 3.75% for 14 months, the fastest pace of tightening ever, in hopes of halting runaway prices.
However, both headline and underlying inflation remain above 5%, raising the risk that workers will start demanding larger wage increases, especially as the labor market remains extremely tight.
There are no fundamental changes to the ECB’s 2025 inflation forecast, but this is not a main topic of discussion among policymakers due to the low accuracy of recent forecasts.
Meanwhile, the growth rates for this year and 2024 are expected to be revised downward, roughly in line with market expectations, the person said.
Economists polled by Reuters predict the euro zone will grow by 0.6% this year and 0.9% in 2024.
Written by Balazs Kolanyi.Editing: Paul Simao
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