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ECB firms up expectations for July interest rate hike
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LJUBLJANA (Reuters) – The European Central Bank has firmed up expectations that it will raise its benchmark interest rate in July for the first time in more than a decade to fight record-high inflation, with some policymakers even hinting on Wednesday at further hikes after the first.
LJUBLJANA (Reuters) – The European Central Bank has firmed up expectations that it will raise its benchmark interest rate in July for the first time in more than a decade to fight record-high inflation, with some policymakers even hinting on Wednesday at further hikes after the first.
With ECB policymakers clamouring for a rate hike for weeks, President Christine Lagarde has finally thrown her weight behind such a move, saying the central bank was likely to end its stimulus programme early in the third quarter, followed by a rate hike that could come just “a few weeks” later.
Most other major central banks have already raised borrowing costs but the ECB, which had fought too low inflation for a decade, is still pumping cash into the financial system via bond purchases.
“My expectation is that they should be concluded early in the third quarter,” Lagarde said at a conference in the Slovenian capital.
“The first rate hike, informed by the ECB’s forward guidance on the interest rates, will take place some time after the end of net asset purchases…(and) this could mean a period of only a few weeks.”
Inflation hit 7.5% in the euro zone last month and even measures that strip out food and energy prices rose above the ECB’s 2% target.
“What started as a one-off shock has now become a more broad-based phenomenon,” ECB policymaker Bostjan Vasle said at the same event. “When the circumstances change, the policy response must follow,” the Slovenian governor added.
ECB board member Isabel Schnabel said the ECB needed to act now to protect its credibility and stop inflation expectations, which have risen to 2% or slightly above, from spiralling out of control.
GROWING CALLS
The number of ECB policymakers calling for a July hike has been growing almost every day and on Wednesday alone included board member Frank Elderson, French central bank governor Francois Villeroy de Galhau and Bundesbank president Joachim Nagel.
“I think that from this summer onwards, the ECB will gradually raise its interest rates,” Villeroy de Galhau told France Inter radio.
Estonian governor Madis Mueller also hinted at a series of hikes that could lift the ECB rate on bank deposits, which is currently -0.5%, above zero by the end of the year for what would be the first time since 2014.
“Even if we go by 25 basis point increments, we may get to a positive rate by the end of the year,” he told Reuters in an interview.
(Reporting By Balazs Koranyi; Writing by Francesco Canepa in Frankfurt; Editing by Toby Chopra and Hugh Lawson)
The European Central Bank (ECB) is the central bank for the euro and administers monetary policy within the Eurozone, aiming to maintain price stability and manage inflation.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation to maintain economic stability.
A benchmark interest rate is a standard rate used by banks to set interest rates on loans and deposits. It influences borrowing costs and economic activity.
Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates to achieve macroeconomic objectives like controlling inflation and stabilizing currency.
A rate hike is an increase in the interest rate set by a central bank, which can affect borrowing costs, consumer spending, and overall economic growth.
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