Talk of a third 0.75% rate hike from the ECB in six weeks

'This energy crisis is causing massive inflation, which we have to defeat', ECB president Christine Lagarde said

Sun, 30 Oct, 2022 - 17:34

Alan Healy

Less than a week after delivering a 0.75% interest rate hike, speculation has already begun on what steps the European Central Bank (ECB) will take at its next Governing council meeting in six weeks' time.

In its ongoing efforts to reduce EU-wide inflation of more than 10%, the ECB has set out a series of planned rate hikes into next year as it brings more than a decade of low-interest rates to an end.

The first increase in July raised the three key ECB interest rates by 50 basis points. This was followed in September and last week by twin 75 basis point increases.

Mortgage holders are waiting to see how lenders in Ireland will respond to the increases. So far, lenders here have absorbed some of the ECB hikes, although tracker mortgage customers have felt their immediate impact.

Rate hikes are expected to continue until the middle of next year, which will see hundreds added to the monthly mortgage repayments.

The current focus of policymakers switches to December 15, when the ECB council meets again. Dutch Central Bank president and Governing Council member Klaas Knot said he would favour an interest-rate hike of 50 or 75 basis points in December, though he highlighted that a decision has yet to be made.

A third three-quarter point increase “would be possible, but it's too early to say,” Knot said in an interview.

We still have six more weeks to go and there are still a lot of economic numbers coming out.

The Dutch central banker, who is among the region’s more hawkish officials, said the ECB is still in a phase of bringing borrowing costs back to neutral — a level at which they neither stimulate nor constrict the economy.

For that, we indeed also need the December meeting. We will take another substantial interest rate step.

Inflation data on Friday revealed new records for Germany, France, and Italy, and figures due today are predicted to show an all-time high of 10.3% for the entire eurozone.

ECB president Christine Lagarde was in Ireland on Friday where she appeared on the Late Late Show, where she told Ryan Tubridy the central bank was “fighting inflation” caused by a speedy recovery after the pandemic, plus “the energy crisis caused by Mr Putin who has decided in an unjustifiable way to invade another country.”

“This energy crisis is causing massive inflation, which we have to defeat,” she said.

That’s why we have to raise interest rates because we want to tame inflation, bring it back to reasonable levels so the cost of living isn’t as high as it is for people.

With Europe at risk of a recession, officials dropped an earlier reference to rate increases continuing for “several meetings,” saying simply they expect borrowing costs to be raised “further.”

Lagarde told journalists on the day that there’s still “ground to cover.”

The ECB is not alone in its fight against inflation. This week both the Bank of England and the US Federal Reserve are expected to announce their own 75 basis point rate increases.

The transatlantic double act illustrates the trade-off confronting central banks as evidence of an impending global economic contraction becomes harder to ignore, even as inflation lingers.