The ECB will discuss a possible rate hike at its meeting on Thursday.
(Photo: dpa)
Frankfurt/Berlin In view of the record inflation in the euro zone, the European Central Bank (ECB) is apparently discussing a larger rate hike. At the meeting on Thursday, in addition to an increase of a quarter of a percentage point, a possible increase of half a point should also be discussed. The news agencies Reuters and Bloomberg report, citing insiders.
The ECB declined to comment on the information when asked. ECB President Christine Lagarde had actually only promised a step up by a quarter of a percentage point and a possibly larger increase only for September.
The euro rose to $1.0230, its highest level in nearly two weeks, on signals that interest rates could be hiked more sharply. The yield on two-year German bonds, which responds to near-term interest rate expectations, rose about 10 basis points to its highest level in over two weeks, at 0.64 percent. Across the euro area, benchmark 10-year bond yields were around five basis points higher.
Clemens Fuest, President of the Munich Ifo Institute, also believes that an increase of at least 50 basis points is necessary. The ECB must take more consistent action against inflation so that it does not take root. “The main thing now is to prevent private households and companies from adjusting to permanently higher inflation rates and raising wages and other prices accordingly,” Fuest told the “Münchner Merkur”.
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In June, inflation in the euro area rose to a record 8.6 percent. The statistics office Eurostat confirmed the first forecast on the development of consumer prices on Tuesday.
Among the leading central banks, the ECB is a laggard when it comes to interest rate hikes. In the US, the Federal Reserve reacted much earlier to the sustained surge in inflation by raising interest rates.
The Fed even hiked interest rates by 0.75 percent in June, the largest hike since 1994. The ECB, on the other hand, is still keeping its key rate at the record low of 0.0 percent, at which it has been since March 2016.
The deposit rate has also been in the red since 2014, which means penalty interest for banks if they park excess liquidity with the central bank. The rate has been minus 0.5 percent since autumn 2019.
More: Inflation and the Italian crisis: The ECB leadership now needs courage and speed