On Thursday, the European Central Bank (ECB) is expected to implement its first interest rate hike since 2011 despite the gloomy economic outlook.
Against the backdrop of an environment of rapid inflation and a significant slowdown in growth, analysts are unanimous in the view that the ECB is far behind in this regard.
The series, raises several important questions about the rate hike and the prospects of the European economy among them;
How much increase will the ECB implement?
With the European inflation rate peaking at 8.6%, the ECB is expected to implement a rate hike of 25 basis points with a deposit rate of -0.5% since 2014.
It was backed by Generali Investments senior economist Martin Wolburg as the broader market gave a hawkish picture.
In addition, there is a possibility of a 50 basis point jump due to the weakness in the Euro but experts do not risk it.
What are the ECB's plans regarding bond market tensions?
It is understood the ECB will announce new anti-fragmentation methods to curb the surge in bond yields.
Comment Reinhard Cluse of European UBS, the stronger the outline made against the instrument the less risk it is tested by the market.
Currently policymakers are considering the size and duration of the new bond purchase scheme because if it is too big it will increase confidence but if it is small it will bring disappointment to investors.
How does the ECB deal with the economic outlook with a rate hike?
Questions arose about a larger ECB rate hike in September as growth prospects deteriorated, flanked by concerns over gas supply issues in Europe.
Generally the money market has pushed back expectations for the scale of monetary tightening of the ECB, which according to analysts closed the chances of a rate hike earlier than expected.
Wolburg is clear that the weak economic outlook is hampering the ECB’s tightening path with its base case for deposit rates at 1.25% by 2023.
Does the ECB expect a recession?
Along with the rate hike meeting on Thursday, it was also the annual maintenance deadline for the largest single pipeline carrying Russian gas to Germany.
The matter, which could lead to a recession, has been a major issue for Christine Lagarde even as the European Commission expects the European zone economy to grow 1.4% next year.
As Andrew Mulliner of Global Aggregate Strategies Janus Henderson explained, the ECB is aware of the risk of a recession but it is not their main problem at the moment.
How will the ECB deal with the weakness in the Euro?
The fall of the Euro below the $ 1.00 level for the first time in 2 decades posed a problem for the ECB as letting the currency fall exacerbated inflation.
Yet a more hawkish stance will support the currency or a faster rate hike could hurt growth.
The string, the move is seen as not going to be taken as the ECB is stuck in a rather dangerous loop as too much tightening could hurt the economy and the currency.
