The European Central Bank will forgo earlier guidance for a half-point interest-rate increase at this week’s meeting and only hike by half that amount amid concerns over the health of the financial sector, according to Bloomberg Economics.
(Bloomberg) — The European Central Bank will forgo earlier guidance for a half-point interest-rate increase at this week’s meeting and only hike by half that amount amid concerns over the health of the financial sector, according to Bloomberg Economics.
Economists David Powell, Maeva Cousin and Jamie Rush changed their call for the upcoming decision, and now predict only a quarter-point step.
“Is Credit Suisse too big to fail? Maybe, but it’s certainly too big to ignore,” they said in a note on Wednesday, a day before the ECB is set to announce the outcome. “Bloomberg Economics now expects the Governing Council to be more cautious than it previously signaled.”
Traders have also pared bets on the size of Thursday’s rate increase — even after ECB President Christine Lagarde described a half-point hike as “very, very likely” earlier this month.
Having confidently baked in a 50 basis-point hike as recently as a few hours ago, they now expect the ECB to only deliver a quarter point after the slump in Credit Suisse Group AG and other European bank shares.
Former officials of the Frankfurt-based central bank have weighed in as well. Ex-Vice President Vitor Constancio warned on Twitter that central banks shouldn’t ignore signs from the markets and the greater likelihood of an economic downturn.
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