Interest rates | FT: The ECB may raise interest rates to historically high levels

The market interest rate hike expectations have risen in recent weeks. Based on the derivatives market, investors expect the European Central Bank (ECB) to raise its deposit rate to 3.75 percent by autumn, Financial Times tells.

Just a month ago, investors were expecting the ECB to raise its deposit rate to just over three percent.

A deposit rate of 3.75 percent would be a historically high reading for the ECB. The ECB has kept its deposit rate at 3.75 percent only once before, at the turn of 2000-2001, after which the interest rates have remained significantly lower for more than 20 years.

According to Nordea bank, the interest rate hike expectations are a result of stronger than expected economic development in the euro area.

“The stronger-than-expected economic figures increase the probability that the euro area economy will hold its ground at the beginning of the current year. On the other hand, this also means that the ECB has to raise interest rates even higher in order to bring inflation down to the target,” Nordea wrote in its morning review on Wednesday.

Like many other central banks, the ECB started rapid rate hikes last year. The ECB’s deposit rate is currently 2.5 percent, while a year ago it was -0.5 percent.

of the ECB interest rate hikes are directly reflected in consumer and corporate debt servicing costs. For example, the 12-month Euribor, which is often used as a reference interest rate for mortgages, has risen to almost 3.6 percent in recent days. Just a month ago, the 12-month Euribor was 3.3 percent.

President of the European Central Bank Christine Lagarde has emphasized in his statements that the ECB plans to continue raising interest rates in the spring. The ECB will next decide on interest rate hikes on March 16.

The ECB Executive Board is currently meeting in Inari, Finland. However, this is not an ECB monetary policy meeting where the executive board would make official monetary policy decisions.