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The European Central Bank is expected to roll out another super-size rate hike Thursday to combat runaway inflation, despite concerns higher borrowing costs could deepen the pain of a looming eurozone recession.
The ECB's 25-member governing council is likely to lift its key interest rates by 75 basis points for the second consecutive time, economists say.
The Frankfurt institution is under pressure to rein in record-high inflation, driven by surging food and especially energy prices in the wake of Russia's war in Ukraine.
Eurozone inflation stood at just under 10 percent in September, nearly five times the ECB's two-percent target.
ECB president Christine Lagarde warned recently that inflation was "far too high" and more action was required to prevent price shocks from becoming "entrenched".
Like other central banks, the ECB is fighting back with a series of rate hikes intended to dampen demand by making credit more expensive for households and businesses -- at the risk of triggering an economic downturn.
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"The 75 basis point rate hike looks like a done deal," said ING economist Carsten Brzeski.
"The ECB has turned a blind eye on recession risks," he added.
The outlook for the eurozone economy has darkened in recent weeks as the 19-nation region grapples with the fallout from the Ukraine war, soaring tensions with Moscow and pandemic-induced global supply chain woes.
If Russia completely cuts off gas flows to Europe, the eurozone economy could shrink by nearly one percent in 2023, ECB vice-president Luis de Guindos has warned.
That scenario has become more likely after Russia in late August shut down the crucial Nord Stream 1 pipeline to Europe's economic powerhouse Germany.
The German economy is already forecast to shrink by 0.4 percent next year.
As European governments race to unveil multi-billion-euro support measures to help citizens through a cost-of-living crisis this winter, the ECB's monetary policy tightening has come under scrutiny.
Italian Prime Minister Giorgia Meloni this week slammed the ECB's "rash choice" to keep hiking rates, saying it created "further difficulties for member states that have elevated public debt", Bloomberg News reported.
French President Emmanuel Macron has also expressed "concern" that the ECB was "shattering demand" in Europe.
The ECB has already increased rates twice since July, ending over a decade of ultra-low and even negative interest rates.
Lagarde has repeatedly urged governments not to fall into the trap of spending so much that they end up boosting inflation and working against the ECB.
In the United States inflation has been fuelled not by energy costs but by pandemic-era stimulus spending.
The Federal Reserve has hiked rates faster and more aggressively, leaving the ECB open to criticism that it was slow to jump into action.
Balance sheet in focus
The ECB is also expected to use this week's meeting to discuss bringing other monetary policy levers in line with its inflation-busting efforts.
Policymakers are likely to announce changes to the 2.1 trillion euros (dollars) in super cheap, long-term loans (TLTROs) offered to banks in recent years to help the eurozone through several crises -- sometimes at negative rates.
As a consequence of the rate hikes, lenders can now make an easy profit by parking their excess TLTRO cash at the ECB and pocketing the new, higher deposit rate -- prompting policymakers to look for ways to incentivise early repayment of the loans.
The ECB may also ponder how best to shrink the five-trillion-euros worth of bonds on its balance sheet, after years of hoovering up government and corporate debt to drive up stubbornly low inflation.
But given the uncertain outlook and the risk of rattling financial markets, analysts say the start of any "quantitative tightening" -- letting the bonds mature or actively selling them -- is some way off.
"The recent events in the UK, which forced the Bank of England into a major U-turn on bond purchases, could be viewed as a useful reminder that any aggressive withdrawal of liquidity risks being highly disruptive for the bond market and the transmission of monetary policy," said Ducrozet.