ECB rate hike debate set to intensify this week


The European Central Bank’s (ECB) debate over how aggressively to tighten monetary policy is likely to intensify this week ahead of a blackout period ahead of the decision, as data is likely to show a new record for inflation.

ll except for one economist interviewed by Bloomberg forecast an acceleration in annual price increases, with a median estimate of 7.8 percent. Of the four largest economies in the eurozone, only Spain will not see inflation picking up.

This data comes amid lively public debate over interest rates by ECB officials, whose window to comment ahead of the June 9th decision will close on Thursday.

Meanwhile, behind-the-scenes exchanges between staff in Frankfurt and at central banks across the eurozone will also pick up the pace as they finalize crucial forecasts for ECB President Christine Lagarde, who will be presented the following week along with a choreography of planned tightening through September should be.

All of this will be crucial for officials who argue about how fast and how far interest rates will rise. Dutch central bank governor Klaas Knot — who doesn’t rule out an aggressive half-point hike like the US Federal Reserve has done this month — points to inflation and related underlying indicators as key data it is attributing to observed.

“These new numbers are extremely important in determining the speed at which rate hikes must occur,” said Giorgio di Giorgio, a professor at Luiss University in Rome, in an interview.

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

The President announced the likely outcome of the ECB’s next three decisions, with the decision in June likely to confirm an end to asset purchases, followed by a quarter-point rate hike in July and September to end monetary policy below zero.

How this trail comes about is the focus of heated debate, with some officials urging that larger migrations are at least an option. These include Mr. Knot, his Austrian colleague Robert Holzmann and Martins Kazaks from Latvia.

Bundesbank President Joachim Nagel may agree. In an interview with , he also expressed ambitions for at least three steps to take ECB rates above zero before the end of the year mirror last week.

In contrast, his French counterpart Francois Villeroy de Galhau insisted to Bloomberg Television last week that a half-point hike “is not part of the consensus at this point, I’m sure.” He continues to expect the price to rise to a level considered neutral next year.

He is among several policymakers who have yet to speak before the lockdown period begins before the decision. Other of those appearances will come from officials usually seen as more moderate, including Bank of Italy Governor Ignazio Visco and Bank of Spain chief Pablo Hernandez de Cos.

ECB chief economist Philip Lane, who can be seen in the same camp, is also to have his say.

The numbers become all the more important to the role they will play in the June 9 decision. Its officials forecast on May 16 that inflation will average 6.1 percent this year and 2.7 percent next year, still above the ECB’s 2 percent target. ECB rate hike debate set to intensify this week

Fry Electronics Team

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