London Daily

Focus on the big picture.
Thursday, Jul 10, 2025

ECB to raise rates again — but the real focus is on what Lagarde says

ECB to raise rates again — but the real focus is on what Lagarde says

Observers criticize ‘sub-optimal’ messaging over longer-term plan.

The European Central Bank is almost certain to raise interest rates by half a percent on Thursday, but muddled communication leaves big questions over how much more economic pain the ECB will inflict in its battle against inflation.

So rather than focusing on February's rise itself, governments and investors are already looking ahead to whether ECB President Christine Lagarde doubles down on previous signals for another half-percent hike in March and what words she uses to describe any future additional tightening.

The key rate on the deposit facility is now 2 percent and is expected to rise to 2.5 percent at Thursday's policy meeting.

Fresh inflation and growth projections will be available by the time of the next ECB meeting in mid-March and the hope is that they will show price rises declining significantly faster than December’s forecasts.

This would strengthen the case made by those policymakers calling for more moderate hikes and who warn against causing unnecessary pain in the eurozone economy.

ECB policy guidance in December spoke of “another 50-basis-point rate hike at our next meeting [February] and possibly at the one after that [March].”

But that was quickly called into question by a faster-than-expected decline in headline inflation coupled with a media report saying that slower tightening in March was gaining support among central bank policymakers.

The pace of tightening could be slowed in March, said Barclays economist Silvia Ardagna. “There could be a divergence of views at the February 2 meeting that could intensify in the run-up to the March meeting, when the ECB staff will produce a new set of macroeconomic forecasts,” she said.

Despite all that though, most analysts expect Lagarde to signal another half-percent rise for March.

Headline inflation remains significantly above the 2 percent target and core inflation, which strips out volatile factors such as energy and food, considered a bellwether for inflation trends ahead, may not yet have peaked. Moreover, technical troubles at Germany’s statistics office mean that inflation data is less reliable and less likely to spark any shift.

And in a further argument that the region can handle rate hikes, the economy has proven more resilient than feared with preliminary Eurostat data on Tuesday showing that the region expanded by 0.1 percent in the final quarter, defying expectations of contraction.

Hawks on the Governing Council have been out in full force to stress the inflation battle has not been won. Perhaps more importantly, the pushback from the doves has remained fairly muted. Gabriel Makhlouf, seen as a pragmatic dove, even came out in favor of another big move in March.

Dropping the previous guidance without a shift in the data also risks hurting Lagarde’s credibility at a time when it is already bruised.

Headline inflation remains significantly above the 2 percent target and core inflation, which strips out volatile factors such as energy and food

She finds herself in a tight spot because while she stresses that decisions are taken meeting-by-meeting and hinge on incoming data, she has also already promised half-percent hikes for February and flagged a similar move for March.

While Berenberg Economics economist Holger Schmieding said he expected the ECB to confirm that it is progressing at a “steady pace” and so will raise rates by half a percent in March, he said doves may set a mark by softening the official language on rates still having to rise “significantly” further.

“Although it is quite possible that the ECB will tweak the wording, we consider it more likely that the bank will not change this sentence materially yet,” he said.

Experts expect the ECB to raise rates to somewhere between 3.25 percent and 3.75 percent from the current 2 percent.

Whatever the central bank has in mind, it should work on its “suboptimal” communication, said ING economist Carsten Brzeski. “It would help if the ECB were to clarify its reaction function and send a message that has a longer shelf life than just a few days,” he said.

Newsletter

Related Articles

0:00
0:00
Close
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
Music Banned by Henry VIII to Be Performed After 500 Years
Steve Coogan Says Working Class Is Being ‘Ethnically Cleansed’
Home Office Admits Uncertainty Over Visa Overstayer Numbers
JD Vance Questions Mandelson Over Reform Party’s Rising Popularity
Macron to Receive Windsor Carriage Ride in Royal Gesture
Labour Accused of ‘Hammering’ Scots During First Year in Power
BBC Head of Music Stood Down Amid Bob Vylan Controversy
Corbyn Eyes Hard-Left Challenge to Starmer’s Leadership
London Tube Trains Suspended After Major Fire Erupts Nearby
Richard Kemp: I Felt Safer in Israel Under Attack Than in the UK
Cyclist Says Police Cited Human Rights Act for Riding No-Handed
China’s Central Bank Consults European Peers on Low-Rate Strategies
AI Raises Alarms Over Long-Term Job Security
Saudi Arabia Maintains Ties with Iran Despite Israel Conflict
Musk Battles to Protect Tesla Amid Trump Policy Threats
Air France-KLM Acquires Majority Stake in Scandinavian Airlines
UK Educators Sound Alarm on Declining Child Literacy
Shein Fined €40 Million in France Over Misleading Discounts
Brazil’s Lula Visits Kirchner During Argentina House Arrest
Trump Scores Legislative Win as House Passes Tax Reform Bill
Keir Starmer Faces Criticism After Rocky First Year in Power
DJI Launches Heavy-Duty Coaxial Quadcopter with 80 kg Lift Capacity
U.S. Senate Approves Major Legislation Dubbed the 'Big Beautiful Bill'
Largest Healthcare Fraud Takedown in U.S. History Announced by DOJ
×