ECB to raise deposit rate by 50 bps on December 15

The European Central Bank will take its deposit rate up by 50 basis points next week to 2%, despite the euro zone economy almost certainly being in recession, as it battles inflation running at five times its target, Report informs referring to Reuters.

Since starting its inflation-fighting campaign in July, later than its peers, the ECB has been raising rates at its fastest pace on record and has already added 200 basis points to its key deposit rate, taking it to 1.5%.

According to the December 5-8 Reuters poll, banks will earn 2.00% on deposits after policymakers meet on December 8, the most since 2009. The refinancing rate will also move up by 50 basis points, to 2.5%.

The median view for the deposit rate was held by 51 of 60 economists surveyed, while two said the ECB would be more cautious and seven said it would be more aggressive.

When it last met in late October, the Governing Council topped up key rates by 75 basis points.

The US Federal Reserve is also widely expected to downshift to a 50-basis point move following four consecutive 75 basis point increases at the conclusion of its policy meeting on December 7, the day before the ECB decision.

"The ECB’s meeting next week is one of the few meetings at which the central bank will take a decision after the Federal Reserve and not before it. A slowing of the Fed’s rate hike pace could have an impact on the ECB as well," said Carsten Brzeski at ING.