Latest News

Chorus backing big ECB rate hike grows

0

Chorus backing big ECB rate hike grows By Reuters

Breaking News

‘;

Economy 27 minutes ago (Aug 30, 2022 18:50)

© Reuters. FILE PHOTO: The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach

By Balazs Koranyi

ALPBACH, Austria (Reuters) -A chorus of European Central Bank policymakers called for decisive and swift rate hikes on Tuesday to combat soaring inflation, suggesting that the choice in next week’s policy meeting will be between a big move and an even bigger one.

With inflation likely hitting 9% this month before heading towards double-digit territory on soaring gas prices, policymakers are increasingly worried that even long-term expectations may move above the ECB’s 2% target, indicating a loss of confidence in the bank’s inflation-fighting powers.

That leaves the choice for next week largely between a 50 and a 75 basis-point hike after the ECB raised the deposit rate by 50 basis points to zero last month in its first hike in over a decade.

Dutch central bank chief Klaas Knot and Estonia’s Madis Müller both said that 75 basis points should at least be discussed while Bundesbank chief Joachim Nagel argued for swift action, praising the benefits of front-loading moves.

“A swift normalization of interest rates is an essential first phase, and some front-loading should not be excluded,” Knot told a Danske Bank event. “The broadening and deepening of our inflation problem generates the need to act forcefully.”

ECB board member Isabel Schnabel and French central bank chief Francois Villeroy de Galhau meanwhile called for forceful or significant rate hikes this weekend.

Market futures fully price in a 50 basis-point move and high probability of a 75 basis-point hike, suggesting that the ECB could go either way.

“I think 75 basis points should be among the options for September,” Müller said. “We should not be too timid with policy moves as inflation has been too high for too long and we are still far below the neutral rate.”

Adding to the 75 basis-point argument, the U.S. Federal Reserve has raised rates by that much at back-to-back meetings and another similar move could be on the cards. That weakens the euro and further boosts euro zone inflation.

While many policymakers said the aim is to first get rates to the “neutral” level, where the ECB is neither stimulating nor cooling growth, Knot said this rate – somewhere between 1% and 2%, may not be enough and restrictive policy could become necessary.

Speaking just two days before the ECB’s next quiet period, Pierre Wunsch, Belgium’s central bank chief, echoed Knot’s comment, arguing that restrictive policy may be necessary, even as a recession is now likely.

“I think the consensus is we have to move quickly to a level that at some point … will be restrictive,” Wunsch said.

The complication is that high energy prices will reduce consumption and weigh on industrial output, almost certainly pushing the bloc into recession over the winter months.

Rate hikes into a recession normally exacerbate a downturn but this shock driven by soaring commodity price and ECB policy has little power over supply-side disruptions.

“We should not delay further rate hikes for fear of a possible recession,” Nagel said. “Inflation rates will not return to the central bank’s inflation target on their own.”

Knot, who said he was leaning towards a 75 basis-point move, added that given the scarcity of labour, firms are likely to “hoard” workers in the initial phase of a downturn, so this recession would not shake the economy as some expect.

“Even if this slowdown were to materialize, this in itself is unlikely to bring inflation back to our objective over the medium term,” he said.

As part of policy normalisation, Knot said the ECB should also consider reducing its balance sheet by not investing all of the proceeds maturing its in Asset Purchase Programme.

But any rundown of assets should be “very gradual” and talks on this are not expected before October or December, he said.

Chorus backing big ECB rate hike grows

Shares tumble, yields jump as data fuel rate angstBy Reuters – Aug 30, 2022

By Koh Gui Qing NEW YORK (Reuters) – World stocks tumbled for a third consecutive session on Tuesday on concerns about likely U.S. and European interest rate hikes, after data…

Musk requests to delay Twitter trial to November – court filingBy Reuters – Aug 30, 2022

(Reuters) -Elon Musk sought to delay the Twitter Inc (NYSE:TWTR) trial by about a month to November, according to a court filing, as a whistleblower provided the world’s richest…

ECB’s Stournaras opposes big rate move, calls for prudenceBy Reuters – Aug 30, 2022

ALPBACH, Austria (Reuters) -The European Central Bank (ECB) needs to keep raising interest rates but there is no need for a big move and the bank should instead follow a prudent,…

Our Apps



Terms And Conditions
Privacy Policy
Risk Warning

© 2007-2022 Fusion Media Limited. All Rights Reserved.

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

ECB rates may need to go higher than neutral, Wunsch says

Previous article

ECB’s Stournaras opposes big rate move, calls for prudence

Next article

You may also like

Comments

Leave a reply

Your email address will not be published.

More in Latest News