The European Central Bank is set to deliver three quarter-point increases in interest rates in May, June and July before ending the most aggressive bout of monetary tightening in its history, economists polled by Bloomberg say.
(Bloomberg) — The European Central Bank is set to deliver three quarter-point increases in interest rates in May, June and July before ending the most aggressive bout of monetary tightening in its history, economists polled by Bloomberg say.
That would take the deposit rate to 3.75%, where it would stay through the rest of the year, according to the April 5-13 survey.
The results show economist expectations are broadly in line with those of investors, who’ve pared back bets on the peak of this cycle of hikes following the banking collapses in the US and Switzerland.
Speaking last week on the sidelines of the International Monetary Fund’s Spring Meetings, ECB officials were almost unanimous in calling for borrowing costs to be raised further on May 4, though the size of that move remains up for debate.
In remarks published Monday, Latvian central bank Governor Martins Kazaks said the decision is likely to be between slowing the pace to a quarter-point or opting for a fourth straight move of twice that size.
“At some point, it’s only natural that the step size is reduced — for example, the increase could be not 50 basis points, but 25 basis points,” he said, according to the Baltic country’s Leta news service.
“Should we move to a lower step already at the ECB Council meeting in May? I think there’s every possibility for that, but a 50 basis-point increase isn’t an option that can be ignored,” Kazaks was cited as saying.
The recent financial-sector turmoil may help the ECB by tightening credit conditions, President Christine Lagarde said Sunday.
“If they don’t lend too much credit and if they manage their risk, it might reduce the work that we have to do to reduce inflation,” she told CBS’s ‘Face the Nation.’ “But if they reduce credit too much, then it will weigh on growth excessively. So it’s a fine balance.”
Lagarde may elaborate in a speech Monday at the Council on Foreign Relations in New York.
Euro-area inflation — while slowing considerably this year — is still more than three times the ECB’s 2% target and a core measure that strips out volatile elements like food and energy is hitting fresh records every month.
Underlying inflation might have peaked in regard to quarterly averages, but will still be at 5.5% this quarter and is set to surpass the headline number in the second half of this year, the Bloomberg survey shows.
Bundesbank President Joachim Nagel told the Pioneer Briefing podcast in an episode that aired Monday that he’s “counting on a retreat before the summer break.”
“Still, inflation is too high and we have to do more on interest rates,” he said.
–With assistance from Alexander Weber.
(Updates with comments from ECB officials starting in fifth paragraph.)
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