Some members of the European Central Bank want the bank’s next meeting in September to discuss raising interest rates by 75 basis points, despite the risk of a recession in the Eurozone, as the picture on the path of inflation worsens, Reuters reported, citing five sources with knowledge of the case.
THE ECB raised interest rates by 50 basis points in its previous meeting, although it had previously announced that the increase would be by 25 points, while another increase by 50 points has been discounted for the September meeting.
While no ECB member has publicly advocated a major rate hike, the Federal Reserve’s two consecutive 75 basis point rate hikes each time and persistent inflation raise the possibility that such a discussion could begin within the ECB as well, notes the Reuters.
“It is not necessary that I will support a 75 bp increase but there is no reason why it should not be discussed,” said one of the sources, who asked not to be named. “If the Fed did it, then there’s no reason not to at least put it on the table,” he added.
Although an increase of 75 bp. not yet considered very likely, given the expected reactions from the countries of the south, the latest statements strengthen the scenario for an increase of 50 bp. and show that there will be an aggressive mood in the consultations, Reuters comments.
Last week, ECB’s Isabel Schnabel said that the inflation picture has not changed materially since the first 50bp interest rate hike. in a sign that the central bank may be planning to go ahead with a similar hike at the next meeting.
Inflation climbed to 8.9% last month, more than four times the ECB’s official target, while the structural index, which excludes energy and food, is more than twice the official target.
“Inflation is becoming more widespread and the knock-on effects are clear,” a second source told the agency. “The outlook is much worse than we estimated in June, so I agree that 75 bp should at least be discussed.”
A third source said: “for me 50 bp is the minimum. More data will come before September 8, but for now, I see a strong case for 75 units.”
The same sources note that the risk of recession does not reduce the need for larger interest rate hikes, echoing similar positions on the other side of the Atlantic in the context of the debate taking place within the US Federal Reserve.
“Even without rate hikes, will energy get cheaper? No. In fact it could get even more expensive as the euro is expected to weaken and energy is priced in dollars,” a fourth source noted.
“But if you don’t increase [τα επιτόκια] inflationary expectations will strengthen and so we should do more later. The risk of not taking action now is much greater,” he added.
The same sources said the gas price shock is forcing some industries to cut production, which then creates shortages in the supply chain, adding to inflationary pressures. They acknowledged, however, that the recession would ease some of the upward pressure on prices and could help the ECB drive inflation back to target.
Source: Capital
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
