A growing number of officials think the ECB should raise interest rates this year

2022-06-24 0 By

According to MarketMatrix.net, more European central bank (ECB) officials have acknowledged that a rate hike may be needed later this year in the face of a stronger euro zone (EARN) inflation outlook.Ahead of the March 10 policy meeting, consensus is building for September as the end date for asset purchases, according to people familiar with the matter who spoke on condition of anonymity.The ECB’s forward guidance now states that bond purchases will continue “shortly before” interest rates rise.That makes December the most likely month for a rate hike, while October is too early to consider and policy makers won’t meet in November, people familiar with the matter said.Officials stressed that any decision would depend on incoming data and forecasts.An ECB spokesman declined to comment.The ECB forecast in December that consumer prices would grow at an annual rate of 3.2% in 2022. Money markets are pricing in a 44 basis point rate hike by year-end.Yields on Germany’s (GER) 2-year bonds, which are the most sensitive to interest rate changes, have now risen to -0.46%.The shift in monetary authorities’ stance began two weeks ago when ECB President Christine Lagarde refused to rule out a rate rise in 2022 — something she has often said in the past is unlikely to happen this year.But the pressure to adjust policy has intensified.Eurozone inflation has hit a series of record highs, rising to 5.1 per cent, more than double the ECB’s 2 per cent target.Meanwhile, the US Federal Reserve will go further in exiting its accommodative policies, while the Bank of England has already raised rates twice.That came despite Ms Lagarde’s warning that tightening policy too quickly could derail Europe’s economic recovery.But in a series of public remarks by officials this week, executive board member Isabel Schnabel issued one of the starkest warnings, saying that policy action “increases the risk that it is too late.”Even some of the most cautious officials on the ECB’s 25-member governing council are shifting their positions, according to people familiar with the matter.Joachim Nagel of Germany and Claes Kknott of the Netherlands (NED) have both floated the idea of raising interest rates this year.Martins Hasak of Latvia said a rise was “very likely”, although he called the recent 50 basis point pricing in money markets excessive.Hawkish officials noted that soaring energy costs, continued supply chain dislocations and geopolitical tensions could add to upward pressure on wages and inflation expectations.Some question whether the forecasts on which the ECB has relied in the past are reliable.Amid high uncertainty, other policymakers, including Slovakia’s Peter Kazimir and France’s FRA’s Francois Villeroy de Gahau, stressed the need for greater flexibility.While both envisaged completing bond purchases over the summer, they urged a change in official forward guidance, so a rate rise would not necessarily follow soon afterwards.Some officials remain cautious.Pablo Hernandez of Spain (ESP) saw “no reason to overreact to current inflation,” while Olli Rehn of Finland (FIN) warned that a strong reaction “could lead to a halt in economic growth.”Bloomberg Central Bank chief economist Philippe Laing, a key figure in setting the ECB’s stance, said on Thursday that data showed inflation was likely to stabilize at around 2 percent, an outcome that would allow for a “gradual normalization” of policy.The latest forecast for inflation will be released at next month’s meeting.To reassure investors that policy normalization will be gradual and smooth, the ECB will emphasize the difference between policy normalization and tightening.With memories of Europe’s debt crisis almost a decade ago fresh, fears of rising government bond yields in peripheral eurozone countries could spark debate about additional support for countries such as Italy.On the asset purchase front so far, the Emergency Bond Purchase Program (PEPP) will end in March, followed by an expansion of the traditional Asset Purchase Program (APP).All in all, there is much to discuss.Policymakers are unlikely to reach a consensus for less than three weeks, but they must be united on moving forward.”The direction in which we need to move is clear,” Spain’s Decos said.————— Market Matrix: Futures & Derivatives Trading Research Center – Find your best trading opportunities from our selected stream of top news sources like Bloomberg/Reuters /CNBC/WSJ!+++ Top investment banks macro/stock index/crude oil/gold research report and strategy!+++ Economic data/industry report in-depth interpretation!+++ Follow ++ View all resources