ECB poised to raise rates as inflation outpaces growth fears
The European Central Bank is poised to raise interest rates next week despite signs of economic weakness, as inflationary pressures continue to outweigh concerns over growth. Data released on Friday showed that euro area bank interest rates remained elevated in April, with the ECB’s key deposit facility rate holding at 3.75%, unchanged from March but still historically high . Analysts warn that the ECB’s hawkish stance risks deepening a slowdown in the bloc, where inflation remains stubbornly above target.
In Romania, the economy contracted by 1.1% year-on-year in the first quarter of 2026, marking a sharp reversal from earlier forecasts that had predicted a 0.2% decline . The National Institute of Statistics confirmed that GDP stagnated compared to the previous quarter, with sectors such as trade, transport, and hospitality leading the downturn. Economist Adrian Negrescu described the situation as “stagflation,” citing high inflation, falling consumption, and financial constraints . Despite the gloomy outlook, Romania secured a €2.62 billion payment from the EU’s Recovery and Resilience Facility, the first tranche to be approved without delays .
Across the Channel, the Bank of England’s latest survey revealed that UK businesses expect to raise prices at a faster pace in May, though wage growth is slowing . The findings underscore persistent inflationary pressures, even as the housing market weakens. UK house prices fell for the third consecutive month in May, dropping 0.1% to £298,806, according to Halifax . Analysts attribute the decline to rising mortgage rates, fueled by geopolitical tensions in the Middle East.
In Asia, the Bank of Japan is considering a June rate hike after cash earnings growth in April reached its highest level since late 2024 . Meanwhile, India’s central bank held rates steady but introduced measures to stabilize the rupee, which has been under pressure from foreign outflows and regional conflicts . The currency rallied after the Reserve Bank of India scrapped capital gains tax for foreign bond buyers .
In Italy, inflation surged to 2.9% in May, the highest in months, as the war in Ukraine continues to disrupt supply chains . The Istat institute now expects GDP growth of just 0.7% in 2026 and 2027, down from earlier projections, warning that the conflict’s duration remains a critical factor. Estonia, meanwhile, reported a 3.7% year-on-year inflation rise in May, further complicating the ECB’s policy dilemma .
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