Will the ECB raise interest rates in 2022 amid inflation surge?

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The European Central Bank is unlikely to raise interest rates in 2022.

European Central Bank President Christine Lagarde has indicated that a rise in interest rates in 2022 is "very unlikely." This assessment is based on the outlook that inflation, despite its current surge, is expected to remain subdued over the medium term. The conditions the ECB has set for a potential rate increase are thus not anticipated to be met next year.
Conditions for Rate Hikes Remain Unlikely to Be Met

The ECB's established criteria for increasing borrowing costs stipulate that inflation must reach its 2.0% target on a durable basis and be supported by evidence of underlying price pressures. Lagarde's statements suggest that these conditions are highly improbable to be satisfied within the next year. The central bank's previous policy has been to hold off on raising rates until inflation is projected to be at or above the target well in advance of the forecast period.
Inflation Outlook Contrasts with Current Surge

While annual inflation in the euro area reached 4.1% in October, according to Eurostat, the ECB's September forecast projected a lower rate of 1.7% for 2022 and 1.5% for 2023. This discrepancy highlights the challenge central banks face in forecasting inflation amidst volatile economic conditions. The current inflationary pressure has intensified calls for central banks globally to reduce the extensive financial support implemented during the coronavirus pandemic.
Governing Council Maintains Historic Low Rates

In its most recent meeting, the ECB's governing council decided to keep interest rates at their historic lows. This includes the continuation of a negative bank deposit rate, a measure that requires financial institutions to pay to hold excess funds at the central bank. This decision reflects the ECB's cautious approach to monetary policy amidst the ongoing economic uncertainties.

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Will the ECB raise interest rates in 2022 amid inflation surge?

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