ECB spat erupts over rate hikes ahead of key meeting next week

Ignazio Visco rebuked his European Central Bank colleagues for breaking ranks to comment about potential interest rate hikes

Wed, 08 Mar, 2023 - 19:53

Alessandra Migliaccio

Ignazio Visco has openly criticised hawkish European Central Bank colleagues for making statements about future increases in borrowing costs when officials had agreed not to give such guidance.

The outburst by the Bank of Italy governor, in added remarks at the end of a speech in Rome, is a pointed public attack that hints at rising tensions behind closed doors in advance of next week’s decision.

“Uncertainty is so high that the governing council of the ECB has agreed to decide ‘meeting by meeting’, without ‘forward guidance',” he said.

“I therefore don’t appreciate statements by my colleagues about future and prolonged interest rate hikes.”

The remarks by Mr Visco, one of the ECB’s more dovish officials, come as a pre-decision blackout period begins.

A meeting that was intended to seal a half-point rate increase has become an intensified debate over how many further steps to deliver.

Most notably, Austrian central bank governor Robert Holzmann suggested that the hike next week will be the first of four such moves — a tightening campaign that would bring the deposit rate up to 4.5%. His Belgian colleague, Pierre Wunsch, last week openly acknowledged that market expectations of reaching 4% may prove accurate.

“I don’t know, we don’t know enough,” about the prospect of high and prolonged inflation, Mr Visco said.

The public disagreement has deepened since data last week that showed a measure of underlying inflation surged to 5.6%, the fastest in the history of the euro.

Then, earlier this week, Mr Holzmann speculated on future hikes, while chief economist Philip Lane, speaking in Dublin, called for a more cautious approach to decisions.

The same day, Nomura raised its ECB forecast, predicting the rate will now reach as high as 4.25% — with 50 basis-point, or half point, moves in March, May, and June, followed by a final quarter-point increase in July.

Germany’s Bundesbank chief Joachim Nagel has also called for significant hikes beyond March and Klaas Knot of the Netherlands has also said he sees a big rate hike in May if core inflation does not fall.

Meanwhile, European shares were muted on Wednesday as better-than-expected employment data from the US fanned worries over future interest rate increases in the US, while investors also assessed the eurozone’s fourth-quarter growth numbers.

US private payrolls increased more than expected in February and job openings fell less than expected in January with data for the prior month revised higher, pointing to continued labour market strength.

This comes a day after Jerome Powell, chair of the US central bank, in a hearing before the US Senate Banking Committee, said that the Fed might need to raise rates more than expected.

Back home, the European statistics agency Eurostat said the eurozone failed to register any growth quarter-on-quarter in the final three months of 2022, while slightly revising down both its GDP and employment growth numbers.