The planned increase would shift the benchmark deposit rate from 2.0% to 2.25%. While officials remain cautious about committing to a rigid schedule, financial markets are already pricing in two additional hikes within the next year. The move is largely viewed as an insurance policy, intended to safeguard the bank’s credibility after its delayed response to the post-pandemic price surge. Annalisa Piazza of MFS Investment Management noted that while the bank must act to prevent inflation expectations from drifting, it currently remains in neutral territory rather than aggressively restrictive policy.

New economic projections set for release this week are expected to align with a more hawkish stance, potentially signaling a peak inflation rate of 4.2% late this year. Not all analysts agree with this trajectory. Critics, including Berenberg’s Holger Schmieding, argue that the bank risks a policy mistake by tightening against a stagnant labor market and weak consumer demand. Data from recent corporate earnings calls supports this skepticism, showing that only 40% of non-financial firms in the region are currently raising prices, a significant drop from the levels seen during the 2022 energy crisis. Despite these concerns, Chief Economist Philip Lane has signaled that the current energy shock could prove more pervasive than previous crises, necessitating a firm response.