The recovery in Eurozone economies from the COVID-19 pandemic has given way to concerns about inflation, higher interest rates and the impact of the war in Ukraine. Reliance on Russian oil and gas has highlighted Europe’s energy security concerns and delivered significant increases in living costs to households.
In other circumstances, the European Central Bank might have been willing to let the post-pandemic recovery take hold before adjusting monetary policy. However, with Eurozone inflation running at 7.5% year-on-year in April, it looks as though the central bank is readying to quickly move away from its negative interest rate policy. Money market expectations for a hike in the deposit rate in July have strengthened and the deposit rate is projected to be back in positive territory by the third quarter of this year.
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