London Daily

Focus on the big picture.
Friday, Aug 22, 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
Bunkers, Billions and Apocalypse: The Secret Compounds of Zuckerberg and the Tech Giants
Ukraine Declares De Facto War on Hungary and Slovakia with Terror Drone Strikes on Their Gas Lifeline
Animated K-pop Musical ‘KPop Demon Hunters’ Becomes Netflix’s Most-Watched Original Animated Film
New York Appeals Court Voids Nearly $500 Million Civil Fraud Penalty Against Trump While Upholding Fraud Liability
Elon Musk tweeted, “Europe is dying”
Far-Right Activist Convicted of Incitement Changes Gender and Demands: "Send Me to a Women’s Prison" | The Storm in Germany
Hungary Criticizes Ukraine: "Violating Our Sovereignty"
Will this be the first country to return to negative interest rates?
Child-free hotels spark controversy
North Korea is where this 95-year-old wants to die. South Korea won’t let him go. Is this our ally or a human rights enemy?
Hong Kong Launches Regulatory Regime and Trials for HKD-Backed Stablecoins
China rehearses September 3 Victory Day parade as imagery points to ‘loyal wingman’ FH-97 family presence
Trump Called Viktor Orbán: "Why Are You Using the Veto"
Horror in the Skies: Plane Engine Exploded, Passengers Sent Farewell Messages
MSNBC Rebrands as MS NOW Amid Comcast’s Cable Spin-Off
AI in Policing: Draft One Helps Speed Up Reports but Raises Legal and Ethical Concerns
Shame in Norway: Crown Princess’s Son Accused of Four Rapes
Apple Begins Simultaneous iPhone 17 Production in India and China
A Robot to Give Birth: The Chinese Announcement That Shakes the World
Finnish MP Dies by Suicide in Parliament Building
Outrage in the Tennis World After Jannik Sinner’s Withdrawal Storm
William and Kate Are Moving House – and the New Neighbors Were Evicted
Class Action Lawsuit Against Volkswagen: Steering Wheel Switches Cause Accidents
Taylor Swift on the Way to the Super Bowl? All the Clues Stirring Up Fans
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Apple Expands Social Media Presence in China With RedNote Account Ahead of iPhone 17 Launch
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Cambridge Dictionary Adds 'Skibidi,' 'Delulu,' and 'Tradwife' Amid Surge of Online Slang
Bill Barr Testifies No Evidence Implicated Trump in Epstein Case; DOJ Set to Release Records
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
The CEO Who Replaced 80% of Employees for the AI Revolution: "I Would Do It Again"
Emails Worth Billions: How Airlines Generate Huge Profits
Character.ai Bets on Future of AI Companionship
China Ramps Up Tax Crackdown on Overseas Investments
Japanese Office Furniture Maker Expands into Bomb Shelter Market
Intel Shares Surge on Possible U.S. Government Investment
Hurricane Erin Threatens U.S. East Coast with Dangerous Surf
EU Blocks Trade Statement Over Digital Rule Dispute
EU Sends Record Aid as Spain Battles Wildfires
JPMorgan Plans New Canary Wharf Tower
Zelenskyy and his allies say they will press Trump on security guarantees
Beijing is moving into gold and other assets, diversifying away from the dollar
Escalating Clashes in Serbia as Anti-Government Protests Spread Nationwide
The Drought in Britain and the Strange Request from the Government to Delete Old Emails
Category 5 Hurricane in the Caribbean: 'Catastrophic Storm' with Winds of 255 km/h
"No, Thanks": The Mathematical Genius Who Turned Down 1.5 Billion Dollars from Zuckerberg
The surprising hero, the ugly incident, and the criticism despite victory: "Liverpool’s defense exposed in full"
Digital Humans Move Beyond Sci-Fi: From Virtual DJs to AI Customer Agents
YouTube will start using AI to guess your age. If it’s wrong, you’ll have to prove it
×