The European Central Bank is expected to follow the Federal Reserve with a quarter-point interest-rate increase on Thursday.
Economists expect the central bank for the 20 countries sharing the euro to lift its main refinancing rate to 3.75% from 3.5%.
That compares with the Fed’s move to a range of 5% to 5.25% on Wednesday. Fed Chairman Jerome Powell said policy makers are prepared to do more.
The ECB probably also has more work ahead of it to quell inflation that has been more stubborn than hoped. President Christine Lagarde said after the last rate decision in March that inflation is forecast to remain too high for too long.
Earlier this week, data showed the euro zone inflation rate rose to 7.0% in April, up from a 6.9% in March. The core inflation rate came down to 5.6% in April from 5.7%.
That’s lower than the peak above 10% last year, but still significantly higher than the ECB’s 2% target. Lagarde waited until July last year to start raising rates, several months after the Fed began in March. While both started with rates around zero, the ECB hasn’t raised by as much as the Fed, either.
Still, the effects of higher borrowing costs are being felt. Demand for credit in the first quarter was the weakest since the 2008-09 financial crisis, the ECB’s Bank Lending Survey showed.
The euro zone has so far been spared the banking turmoil that has hit regional U.S. lenders in recent weeks.
Credit Suisse,
which collapsed in March to be taken over by
UBS,
provided a scare—but Switzerland isn’t a euro-member country.
Write to Brian Swint at brian.swint@barrons.com
Read the full article here