Economy

‘Small’ or ‘Designed’? European Central Bank policy makers are arguing about raising interest rates

‘Small’ or ‘Designed’?  European Central Bank policy makers are arguing about raising interest rates

LISBON (Reuters) – Two European Central Bank policymakers offered differing views on the size of the European Central Bank’s future rate hike on Thursday, citing some disagreement over whether last week’s massive increase should be repeated.

The European Central Bank raised interest rates by an unprecedented 75 basis points a week ago, and President Christine Lagarde has hinted at two or three more hikes in upcoming meetings to fight record high inflation.

But ECB Vice President Luis de Guindos and Central Bank of Portugal Governor Mario Centeno appeared to disagree on Thursday over the size of the next move.

De Guindos said the European Central Bank should continue to take “firm action,” repeating an adjective Lagarde used to describe last Thursday’s rally.

“Resolute action is necessary to keep inflation expectations constant, which in itself contributes to achieving price stability and avoiding the effects of the second round of inflation,” he said at an event in Lisbon.

However, Centeno said the central bank should take “as small steps as possible” in raising interest rates so as not to destabilize the economy.

“An apparent tightening or even a very sudden normalization … could unduly destabilize the transport mechanism and the real economy,” Centeno told the same event.

โ€œMonetary policy should remain predictable and operate on the sidelines in as small steps as possible.โ€

Inflation hit 9.1% last month and the ECB expects it to remain at similar levels for months and not return anywhere near its 2% target until 2024.

Sources told Reuters that European Central Bank policy makers see the increased risk that they will have to raise the key interest rate to 2% or higher from the current 0.75%.

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Including banks German Bank (ETR:) The BofA is expecting another 75 basis point rate hike from the European Central Bank at its October 25th meeting.

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