ATFX - Paving the way for interest rate hikes? The European Central Bank may raise its inflation forecast for next year

On Tuesday, a source with direct knowledge of the discussions said,The European Central Bank is expected to maintain its inflation forecast for the euro zone next year above 3 percent, which could provide support for a tenth consecutive rate hike on Thursday.

The European Central Bank begins a two-day meeting on Wednesday, with persistently high inflation and mounting recession fears likely to put policymakers in a "dilemma", with markets split between a pause in rate rises and another 25 basis points.

An ECB spokesperson declined to comment.

The sources said the ECB's quarterly forecast will be presented to its governing council on Wednesday.Inflation in 2024 is forecast to exceed 3%, contrary to market expectations that have been slightly revised down. The forecast is well above the central bank's 2% target, will also be higher than the 3% forecast in June, and higher than the 2.7% suggested by a survey of economists by foreign media

The source said,Interest rate decisions will still be made at the last minuteThe formal proposal for the meeting has not yet been submitted.

The recent closely watched inflation data has added to the case for the European Central Bank to raise interest rates, as it appears to confirm concerns thatReducing inflation may be more difficult than previously imagined.

The European Central Bank raised its deposit rate from -0.5% to 3.75% in 14 months, the fastest pace of tightening on record, all in an effort to stem runaway price risesOverall and core inflation rates remain above 5%, thisIncreasing the risk that workers will start demanding bigger raisesEspecially when the labor market remains exceptionally tight.

Although the ECB's inflation forecast for 2025 will not change fundamentally, it has not been a major topic of debate among policymakers due to the poor accuracy of the central bank's forecasts in recent years.

On the other hand, the source said that economic growth in the euro zone will be revised down this year and next, roughly in line with market expectations. Economists surveyed by foreign media expect,The Eurozone's economic growth rate will be 0.6% this year and 0.9% in 2024.。