The European Central Bank (ECB) has raised the Deposit Facility Rate\nto 2.50%, the Refinancing Rate to 2.65%, and the Marginal Lending\nFacility to 2.90%, effective from 16 September. This decision was\naccompanied by a clear warning that the outlook remains highly\nuncertain, with risks skewed to the upside for inflation and to the\ndownside for growth.<\/p>\n
The latest staff projections show average headline inflation at 3.0%\nin 2026, 2.5% in 2027, and 2.1% in 2028. The 2026 forecast remains\nunchanged from June, but projections for 2027 and 2028 have been revised\nupwards. Core inflation, excluding energy and food, is expected to\nremain above target, with averages of 2.5% in 2026, 2.6% in 2027, and\n2.3% in 2028.<\/p>\n
Lagarde stated that the economy has proven resilient, supported by\nconsumption, public investment, and a recovery in the services sector.\nFurthermore, manufacturing remains strong, consumer confidence has\nrebounded, and the labour market is solid, although employment growth\nhas slowed. The short-term growth outlook has improved, with business\nand housing investment expected to provide further support.<\/p>\n
Nevertheless, the central bank faces difficult energy shocks: higher\nprices are expected to feed into core inflation and food costs, while\nworsening conflicts, supply disruptions, or an exceptionally cold winter\ncould drive gas prices even higher. Consequently, the ECB will remain\ndata-dependent and approach decisions on a meeting-by-meeting basis,\nwithout committing in advance to any specific interest rate path.<\/p>\n
Overall, this is a hawkish hike, yet the risk of stagflation\npersists. The ECB raised interest rates because it forecasts that\ninflation will remain above target for longer, even though growth risks\nhave increased. The combination of resilient domestic demand, higher\ninflation forecasts, and the potential for second-round effects opens\nthe door for further tightening, although the Governing Council will\nawait evidence regarding how persistent energy shocks may be.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/ecb-recap-hawkish-interest-rate-hike-despite-growth-downside-risks-1789084243", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }