ECB President Christine Lagarde seemed to kill the suspense in December, pledging to propose a 0.50 percentage point hike in February, similar to the one that had just been decided.

"A promise is a promise!", comments Franck Dixmier, director of bond management at Allianz IG, who, like the markets, expects the course to be held.

This increase, following the Board of Governors on Thursday, will bring the rate remunerating undistributed bank cash in credit to 2.5% and that on short-term refinancing operations to 3.0%, the highest since November 2008.

Euro guardians are battling a massive price spike triggered by Russia's war in Ukraine, which led them to launch a round of rate hikes in July unprecedented in scale and ending nearly a decade of cheap money.

On the other side of the Atlantic, investors were not surprised on Wednesday by the US Fed's announcement of another rate hike reduced to a quarter of a percentage point, as economic activity and inflation show signs of slowing in the United States.

ECB President Christine Lagarde, December 15, 2022 in Frankfurt © Daniel ROLAND / AFP/Archives

The markets are also expecting a rise Thursday of 0.5 percentage point of the Bank of England (BoE) to 4%, a record since the end of 2008, to counter inflation which exceeds 10% in the United Kingdom.

The BoE could also be a little more optimistic about the outlook for the British economy.

- High inflation -

In Frankfurt, the discussion at the Board of Governors will be spiced up by the announcement of the new decline in January, to 8.5%, of the annual inflation rate in the euro zone, more than anticipated by economists thanks to the fall in prices of energy.

A sham improvement because "core" inflation - excluding energy and food - has at the same time remained at 5.2% and "should remain stubbornly high in 2023", warns Fritzi Köhler-Geib , chief economist of the public bank KfW.

Inflation in the euro zone © / AFP

In question, “the improving economic outlook, a tight labor market, substantial wage demands and a high proportion of European companies which expect sales prices to continue to increase”, according to the expert. .

Faced with this scenario of a price rise that takes root, Ms. Lagarde should recall that "inflation, in particular underlying inflation, remains too high" and "reaffirm the absolute necessity for the ECB to continue to act over the long term. "to bring the rate of annual increase in the aggregate back to 2%, according to Mr. Dixmier.

The ECB will have less qualms about tightening the monetary screw further because the euro zone should escape a recession this winter, thanks to a slight growth in GDP (+0.1%) in the fourth quarter of 2022, according to Eurostat.

The current first quarter saw activity rebound in January, according to the PMI, thanks to improving supply chains and the reopening of the Chinese economy.

Doves vs Hawks

As the economy is doing better than expected, the monetary institute will have to "compensate for the lack of spontaneous correction in demand", a key element for the decline in prices, explains Gilles Moec, chief economist at Axa, to AFP.

Rising credit prices have already caused a sharp decline in demand for loans by households and businesses, the ECB noted in January, months before the rise in its key rates reached a peak.

Eurozone growth © Jonathan WALTER / AFP

"For the doves" of the ECB, in favor of flexible monetary conduct, "this will be a key argument to limit further rate hikes from now on. On the contrary, the hawks with their stricter approach which currently dominates the debates" will focus on a resolutely high underlying inflation", underlines Bert Colijn, economist at ING.

The upcoming March meeting will feature a set of new economic forecasts that will count in setting the monetary course.

© 2023 AFP