Friday, July 1, 2022

ECB to intensify debate on interest rate hike this week

European Central Bank (ECB) debate over how aggressively to tighten monetary policy is likely to intensify this week at the start of the pre-decision blackout period as data show perhaps a new record for inflation .

ll but surveyed by an economist bloomberg Annual price growth is expected to pick up with an average estimate of 7.8pc. Spain, of the four largest eurozone economies, will not show an uptick in inflation.

Those data will come out against the backdrop of a vigorous public discussion on interest rates by ECB officials, whose window to speak before the June 9 decision closes on Thursday.

Meanwhile, behind the scenes, exchanges between employees of central banks in Frankfurt and around the eurozone will also pick up pace as they prepare for key forecasts for ECB President Christine Lagarde to be unveiled next week, with choreography of the tightening planned through September. will finalize

All of this will be important to officials who are debating how fast and how far rates will go. Dutch central bank governor Klaas Knott – who won’t rule out aggressive half-point hikes like the US Federal Reserve this month – points to inflation and related underlying indicators as key data to watch.

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“These new numbers are extremely important for determining the speed at which rate hikes will be needed,” Professor Giorgio Di Giorgio of Louis University in Rome said in an interview.

“There is a real tangle of factors that have come together to complicate the picture, from the pandemic to bottle neck supplies, then the war in Ukraine, now China’s zero-Covid policy and its consequences.”

The president indicated the likely consequences of three next ECB decisions, with the prospect of confirming the end of bond purchases in June, exiting sub-zero monetary policy followed by quarter-point rate hikes in July and September.

How that route works is the focus of strong debate, with some officials pushing for a bigger hike for at least one option. These include Mr Nott, his Austrian ally Robert Holzmann and Latvia’s Martins Czachs.

Bundesbank president Joachim Nagel may agree. He expressed ambition in an interview to take at least three steps to bring ECB rates above zero before the end of the year. Spiegel Last week.

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In contrast, his French colleague François Villeroy de Galhau insisted to Bloomberg television last week that the half-point increase “is not part of the consensus at this point, I am clear”. He still considers the rate to rise next year to a level deemed neutral.

He is among several policymakers still due to speak before the pre-decision blackout period begins. Officials in more of those appearances are generally considered more modest, including Bank of Italy governor Ignazio Visco and Bank of Spain chief Pablo Hernández de Cos.

ECB Chief Economist Philip Lane, who is seen in this camp, is also going to speak.

The numbers will be all the more important to his role in the decision on June 9. Its officials predicted on 16 May that inflation would average 6.1 pc this year and 2.7 pc next year, still well above the ECB’s 2 pc target.

Nation World News Desk
Nation World News Desk
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