London Daily

Focus on the big picture.
Friday, Sep 12, 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
Turkish authorities seize leading broadcaster amid fraud and tax investigation
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
ChatGPT CEO signals policy to alert authorities over suicidal youth after teen’s death
The British legal mafia hit back: Banksy mural of judge beating protester is scrubbed from London court
Surpassing Musk: Larry Ellison becomes the richest man in the world
Embarrassment for Starmer: He fired the ambassador photographed on Epstein’s 'pedophile island'
Manhunt after 'skilled sniper' shot Charlie Kirk. Footage: Suspect running on rooftop during panic
Effective Protest Results: Nepal’s Prime Minister Resigns as Youth-Led Unrest Shakes the Nation
Qatari prime minister says Netanyahu ‘killed any hope’ for Israeli hostages
King Charles and Prince Harry Share First In-Person Moment in 19 Months
Starmer Establishes Economic ‘Budget Board’ to Centralise Policy and Rebuild Business Trust
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Brazilian police say ex-President Bolsonaro had planned to flee to Argentina seeking asylum
Trinidad Leader Applauds U.S. Naval Strike and Advocates Forceful Action Against Traffickers
Kim Jong Un Oversees Final Test of New High-Thrust Solid-Fuel Rocket Engine
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Supreme Court temporarily allows Trump to pause billions in foreign aid
Charlie Sheen says his father, Martin Sheen, turned him in to the police: 'The greatest betrayal possible'
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
Pig Heads Left Outside Multiple Paris Mosques in Outrage-Inducing Acts
Nvidia’s ‘Wow’ Factor Is Fading. The AI chip giant used to beat Wall Street expectations for earnings by a substantial margin. That trajectory is coming down to earth.
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
On the Anniversary of Queen Elizabeth’s Death: Prince Harry Returns to Britain
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Murdoch Family Finalises $3.3 Billion Succession Pact, Ensuring Eldest Son’s Leadership
Big Oil Slashes Jobs and Investments Amid Prolonged Low Crude Prices
Court Staff Cover Up Banksy Image of Judge Beating a Protester
Social Media Access Curtailed in Turkey After CHP Calls for Rallies Following Police Blockade of Istanbul Headquarters
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
Elon Musk Poised to Become First Trillionaire Under Ambitious Tesla Pay Plan
France, at an Impasse, Heads Toward Another Government Collapse
Burning the Minister’s House Helped Protesters to Win Justice: Prabowo Fires Finance Minister in Wake of Indonesia Protests
Brazil Braces for Fallout from Bolsonaro Trial by corrupted judge
The Country That Got Too Rich? Public Spending Dominates Norway Election
Nearly 40 Years Later: Nike Changes the Legendary Slogan Just Do It
Generations Born After 1939 Unlikely to Reach Age One Hundred, New Study Finds
End to a four-year manhunt in New Zealand: the father who abducted his children to the forests was killed, the three siblings were found
Germany Suspends Debt Rules, Funnels €500 Billion Toward Military and Proxy War Strategy
EU Prepares for War
BMW Eyes Growth in China with New All‑Electric Neue Klasse Lineup
Trump Threatens Retaliatory Tariffs After EU Imposes €2.95 Billion Fine on Google
Tesla Board Proposes Unprecedented One-Trillion-Dollar Performance Package for Elon Musk
US Justice Department Launches Criminal Mortgage-Fraud Probe into Federal Reserve Governor Lisa Cook
Escalating Drug Trafficking and Violence in Latin America: A Growing Crisis
US and Taiwanese Defence Officials Held Secret Talks in Alaska
Report: Secret SEAL Team 6 Mission in North Korea Ordered by Trump in 2019 Ended in Failure
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
×