ECB rate rise in July possible but not likely      

ECB vice president Luis de Guindos says they may hike rates later this summer

Luis de Guindos gave his view on the ECB's likely response to record high inflation in an interview in 'El Correo'. 

A European Central Bank (ECB) rate increase in July is possible but not “likely,” ECB vice president Luis de Guindos has said.

“There’s no reason why” an end to net asset purchases “shouldn’t happen in July,” Mr Guindos told the Spanish newspaper El Correo in an interview. Rates will rise after that and may happen within “months, weeks, or days. July is possible, but that’s not to say it’s likely”, he said.

Facing record-high eurozone inflation, some policy makers have been pushing for the first ECB rate hike in more than a decade to come as soon as July. Any decision “will depend on the data and the new macroeconomic projections in June”, Mr Guindos said.

Without wanting to preempt those forecasts, Mr Guindos said that “a significant weakening of growth” was already noticeable.

Even so, in 2022 growth will be positive. And if we stick to the technical definition of a recession — two consecutive quarters of negative growth — we currently don’t see it. 

He said that so far, “we haven’t seen wage increases that would put” the ECB’s 2% price target over the medium term at risk, but “we have to be very attentive because this is a delayed indicator”.

“With these levels of inflation, interest rates are not going to be as low as they have been in recent years, and governments need to prepare for this," he said.

"The key, also from the markets’ perspective, is to have credible proposals.” 

ECB chief economist Philip Lane told Bloomberg Television on Friday that the key question facing the ECB isn’t whether it should raise interest rates from record lows, but how quickly it should do so: 

The story is not the issue about are we going to move away from -0.5% for the deposit rate. He said: 

The big issue which we do need to still be data-dependent about is the scale and the timing of interest-rate normalisation.

The remarks followed data showing eurozone consumer prices surged to a fresh all-time high of 7.5% in April, ramping up pressure on the ECB to act — like its counterparts in the US and the UK. Mr Lane conceded that inflation was “very high”.

• Bloomberg