ECB to raise rates for 7th time in inflation fight FMTNews FMTBusiness
The European Central Bank has lifted rates by a record 350 basis points since July in an effort to rein in price increases.
A 25 basis point move, a slowdown after three straight 50 basis point hikes, appears the most likely outcome, although the bigger increase is still a possibility at what is almost certainly not the end of a historic tightening cycle. But they have signalled they could compromise on a smaller move as long as the ECB indicates that May is not the end of its hikes, even if some peers – notably the US Federal Reserve – may be reaching their own interest rate peaks.
Part of the compromise could be a deal to end reinvestments from July of maturing debt bought under the ECB’s €3.2 trillion Asset Purchase Programme – a modest step that would shrink further the bank’s bloated balance sheet, even if the inflation impact would be small. If squeezed hard, this credit downturn could morph into a full-blown credit crunch, weighing on growth which is barely in positive territory, to begin with.
Hawks argue that underlying price growth remains far too high and suggest that inflation could level off above the ECB’s target unless the bank acts more aggressively.
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