European Central Bank policy makers set a 75 basis point rise for October

European Central Bank policy makers set a 75 basis point rise for October

FRANKFURT/HELSINKI (Reuters) – European policymakers said on Wednesday the European Central Bank may need to raise interest rates another 75 basis points at its October meeting, and move again in December to a level that no longer stimulates the economy.

The European Central Bank raised interest rates by a combined 125 basis points in its last two meetings, the fastest pace of policy tightening on record, but inflation may still be months off its peak, indicating further tightening from the bank that has started to rise well after most of his senior peers.

“I must say that 75 basis points is a very good candidate (for our next step) to maintain the pace of tightening, but it is also necessary to wait for new data,” Slovak Central Bank Governor Peter Casimir told a news conference.

“We have to be lively, even ruthless, no matter what recession looms,” Casimir added.

Finnish central bank chief Olli Rehn, who is considered a moderate voter, also said 75 basis points might be among the options.

“There is a case to decide on another big rate hike, whether it’s 75 or 50 basis points or something else,” Ren told Reuters without elaborating on what “something else” might entail. “There is a stronger argument for introduction and resolute action.”

Robert Holzmann, the outspoken political hawk, Austrian central bank governor, also supported the 75 basis point move in an interview with Bloomberg TV, arguing that 100 basis points would simply be too much.

Markets see the ECB deposit rate rising from 0.75% to 2% by the end of the year, then to around 3% next spring. Inflation is expected to remain above the ECB’s 2% target through 2024 and even the long-term outlook is above the target.

European Central Bank President Christine Lagarde said the “first destination” in the rate hike cycle would be the “neutral” rate, with neither stimulating nor slowing growth.

READ ALSO :   Marketmind: Something that beats the drums

“Inflation returns to 2% over the medium term and we will do what we have to do which is continue to raise interest rates in the next several meetings,” she told a conference.

While the neutral rate is an ill-defined concept, economists see it in the range of 1.5% to 2%, a rate that Ren said should be hit this year.

“In my view, we’re heading into the neutral price range by Christmas,” Ren said. “Once we get there, we’ll see if there’s a case for moving to a restricted area.”

Casimir added that there was consensus on the 25-member Governing Council that the “neutral” should be struck, but there was no consensus on the exact level that meant.

As part of the normalization, Casimir said the European Central Bank could also start a discussion this year about reducing its balance sheet, but the discussion does not automatically mean that such action is imminent.

The Latest

To Top