A top European Central Bank official has raised the prospect of a half percentage point rate increase in July. Dutch central bank chief Klaas Knot said if inflation continues to climb then rates may need to be raised. This was the first time such an aggressive shift has been suggested. The ECB left rates unchanged as expected in April. The bank left deposit facility interest rates at -.50%.
Highlights
Dutch central bank chief Klaas Knot is one of the more hawkish members of the ECB’s rate-setting body and his comments on Tuesday saw the euro rise 1.1 per cent against the US dollar to $1.0546 and sent eurozone government bond prices lower.
“Based on current knowledge, my preference would be to raise our policy rate by a quarter of a percentage point — unless new incoming data in the next few months suggests that inflation is broadening further or accumulating,” he told Dutch TV programme College Tour. “If that is the case, bigger increases must not be excluded either.”
Knot’s comments make him the first ECB governing council member to say it could raise its deposit rate by half a percentage point in July. That would take the rate from minus 0.5 per cent to zero in a single move.
Knot added: “In that case a logical next step would amount [to] half a percentage point.” Eurozone inflation for April reached 7.5 per cent — well above the ECB’s target rate of 2 per cent — and price pressures are continuing to build due to the fallout from Russia’s invasion of Ukraine and China’s coronavirus lockdowns.
With the major Central Bank’s all raising rates the ECB president Christine Lagarde has signaled that the ECB’s first rate rise for more than a decade is likely to occur at July’s governing council meeting. The change today is that she and many other policymakers have stressed they will move only “gradually”. In bond speak this implies any change to rates will be in quarter-point increments.
Source: Euopean Central Bank
From The TradersCommunity Research Desk