The European Central Bank will raise interest rates for the seventh meeting in a row on Thursday as its long fight against stubborn inflation continues, with only the size of the move still open to debate.
The central bank for the 20-country euro zone has already lifted rates by a record 350 basis points since July in the hope of stopping runaway price growth. But getting inflation down to its 2% target is still years away, leaving policymakers with little choice but to tighten policy again this month and beyond.
A 25 basis point move, slowing the pace after three straight 50 basis point hikes, appears the most likely outcome, although a bigger increase is still a possibility at what is almost certainly not the end of a historic tightening cycle.
The clincher could be a compromise among policymakers on what signals to send about future increases.
Conservative "hawks", who hold a comfortable majority in the Governing Council, are leaning towards a bigger increase.
But they have signalled they could live with a smaller move as long as the ECB indicates that May is not the end of its hikes, even if some peers - notably the U.S. Federal Reserve - are on the verge of reaching their own interest rate peaks.
Many hawks could live with a smaller move given the right guidance but their dovish colleagues are likely to voice loud dissent if the hike is bigger, leaving the ECB once more speaking with many voices, seen as a weakness for years.
Part of the compromise could be a deal to end reinvestments from July of maturing debt bought under the ECB's 3.2 trillion euro Asset Purchase Programme - a modest step that would shrink further the bank's bloated balance sheet, even if the inflation impact would be small.
Markets see a 75% to 80% chance of a 25 basis point move while the vast majority of economists polled by Reuters were also betting on the smaller hike. Rates are then seen peaking at around 3.75% in September.
Supporting a possible ECB downshift, the U.S. Federal Reserve lifted rates by 25 basis points on Wednesday and signalled it may pause further increases.
