The European Central Bank (ECB) began its 2-day policy meeting today and will announce its interest rate decision on Thursday. Market expectations have swung in recent weeks from nearly no chance for a 25 bp rate hike on Thursday to a better than 50-50 chance of a rate hike, highlighting just how much uncertainty surrounds the decision.
At the beginning of this month, markets were discounting the odds at only 20% for a +25 bp rate hike by the ECB at Thursday’s policy meeting after weaker-than-expected economic reports signaled a slowdown in the Eurozone economy. However, that view has changed rapidly in recent weeks as evidence builds that the Eurozone is facing persistent inflation. The odds for a 25 bp rate hike jumped to 66% today after a report from Reuters said that the ECB's new economic estimates, due to be released Thursday, will show a Eurozone inflation forecast for 2024 above 3%.
