The European Central Bank will take its deposit rate up by 50 basis points next week to 2 percent, despite the euro zone economy almost certainly being in recession, as it battles inflation running at five times its target, a Reuters poll found.
When it last met in late October, the Governing Council topped up key rates by 75 basis points.
“The drop in headline inflation, as little as it says about the impact of the rate hikes so far, could at least take away some of the urgency to continue with jumbo rate hikes.” ECB President Christine Lagarde suggested at the bank’s last meeting that it would set out a plan this month for reducing its bond holdings under the Asset Purchase Programme.The poll said it would reduce the stock by 175 billion euros next year, with forecasts ranging from 75 billion to 600 billion euros.Policymakers face the dilemma of tightening policy just as the currency bloc heads into recession. Respondents in the poll gave a median 80 percent chance of one within a year.
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