Economists agree: ECB to hike rates on September 10 – Reuters poll

A recent Reuters poll indicates that 65 economists surveyed are in agreement that the European Central Bank (ECB) will increase the deposit rate by 25 basis points to 2.50% on September 10. However, 90% of the economists believe that the deposit rate will stay at 2.5% by the end of the year. The ECB, located in Frankfurt, Germany, is responsible for setting interest rates and managing monetary policy within the Eurozone.

The bank's main objective is to maintain price stability, aiming for inflation to hover around 2%. The primary method for achieving this goal is by adjusting interest rates. If interest rates are higher, the Euro typically appreciates, and the opposite occurs when rates are lower. The ECB's Governing Council conducts monetary policy decisions at meetings held eight times annually, with the final decisions made by the national banks of Eurozone countries and six permanent members, including ECB President Christine Lagarde.

In exceptional cases, the ECB can utilize Quantitative Easing (QE), a policy tool that involves the ECB printing Euros to buy assets, typically government or corporate bonds, from banks and financial institutions. This action generally results in a weaker Euro. QE has been employed by the ECB during previous crises, such as the 2009-11 Great Financial Crisis, 2015 when inflation remained low, and during the COVID-19 pandemic.

Quantitative tightening (QT) is the opposite of QE; it occurs when an economic recovery is underway and inflation begins to rise. In QE, the ECB purchases bonds from financial institutions to provide liquidity; in QT, the ECB stops buying bonds and ceases reinvesting maturing bonds' principal. QT is usually positive for the Euro.