Interest rates threaten to rise quickly: Now there are already 3 increases expected this year – an exit from the ECB boss

Financial markets are pricing in the European Central Bank raising the key interest rate no less than three times this year, by a total of 75 basis points, or 0.75 percentage points.

On Wednesday, the expectation had risen to two interest rate hikes as a result of the rapid rise in energy prices. Now investors are pricing in three interest rate hikes as practically certain.

The twelve-month euribor, commonly used as a reference interest rate for Finnish mortgages, rose to 2.658 percent on Friday, while it was 2.524 percent on Thursday. This is the highest level in more than a year.

Interest rate hike already in April?

The background of the changed expectations is at least this week’s escalation in the Iran war. Iran said on Wednesday that the US and Israel had struck the South Pars natural gas field in the Persian Gulf. It is one of the largest gas production areas in the world, which Iran shares with Qatar. Iran retaliated by striking a major gas production facility in Qatar.

As a result of the strikes, the price of a barrel of Brent crude oil approached 120 dollars and the price of European natural gas futures jumped more than 30 percent on Thursday.

The statements of the European Central Bank were no help either. In its meeting that ended on Thursday, the bank decided to keep the key interest rate unchanged, in line with expectations. Director general Christine Lagarde stated that the bank is in a good position to respond to the risks caused by the conflict in the Middle East, and assured that the bank strives to keep inflation at a level of two percent.

However, European Central Bank decision-makers are ready to raise interest rates already at their next meeting in April if the effects of the Iran war accelerate inflation too far from the target level, Bloomberg’s sources said.

A member of the bank’s management team Joachim Nagel stated on Friday that they are ready for an interest rate hike in April if price pressures continue. Nagel is the head of the German Bundesbank.