Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

ECB's Villeroy pushes back on rate hike bets

Economy Feb 04, 2022 16:06
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Bank of France Governor Francois Villeroy de Galhau delivers a speech during the annual meeting of Small and Medium-sized Enterprises leaders at the Bank of France in Paris, France, October 22, 2021. REUTERS/Sarah Meyssonnier

FRANKFURT (Reuters) -European Central Bank policymaker Francois Villeroy de Galhau pushed back against market bets on an upcoming interest rate hike on Friday, saying one "shouldn’t rush to conclusions" about the timing of an ECB move.

Investors have brought forward their expectations for the first ECB rate increase in over a decade to July after President Christine Lagarde acknowledged mounting inflation risks at a policy meeting on Thursday.

Villeroy said the direction of travel was now clear but the ECB will take a gradual approach and keep its options open at all times.

"While the direction of the journey is clear, one shouldn’t rush to conclusions about its calendar: it will remain gradual, state dependent, and open in each of its steps," Villeroy, the Banque de France governor, said in a statement.

His Finnish counterpart, Olli Rehn, appeared less non-committal but also left the door open on the timing of the ECB's first increase since 2011.

"If there are no setbacks in the pandemic or the geopolitical situation, it would logical for the ECB to hike its key interest rate at latest next year," Rehn told newspaper Helsingin Sanomat in an interview.

Euro zone inflation rose to a new record high of 5.1% last month, defying expectations for a big drop and forcing the ECB to finally admit that price growth is not as temporary and benign as it has long predicted.

Lagarde on Thursday opened the door a crack to an interest rate increase this year but said the ECB would first end its bond purchases and only after that raise its rate on bank deposits, currently set at minus 0.5%.

Sources told Reuters the ECB was now likely to bring forward the end of its Asset Purchase Programme, currently set for October at the earliest, at its March meeting and some policymakers wanted to act already on Thursday.

Speaking on Friday, Slovak central bank governor Peter Kazimir also pointed to a March move.

"The fact that, despite the surprises brought by December and January inflation numbers, we did not proceed to tightening, does not mean we will hesitate to react," he said. "We will be wiser in March, we will have more data."

But Villeroy stressed any decision would depend on how the economic and geopolitical situation develops, a likely reference to tensions between the West and Russia which have boosted oil prices - and inflation - in recent months.

While inflation is widely expected to come down by the end of the year, it was already felt by workers, who were demanding wage increases of 3% or more, according to an ECB survey of large companies. [L1N2UF0HB]

That is a key threshold for the ECB, whose chief economist Philip Lane said last week 3% wage growth would be consistent with inflation hitting the central bank's 2% goal, allowing for a typical increase in labour productivity of about 1%.

The ECB has said it will only raise rates once it sees inflation stabilising at 2%.

Economists surveyed by the central bank itself put price growth at 3% this year before it dips to 1.8% in 2023 and 1.9% in 2024, a survey showed on Friday.

ECB's Villeroy pushes back on rate hike bets
 

Related Articles

Top 5 Things to Watch in Markets in the Week Ahead
Top 5 Things to Watch in Markets in the Week Ahead By Investing.com - Aug 07, 2022 3

By Noreen Burke Investing.com -- Wednesday’s July U.S. inflation data will be the main highlight in the week ahead after last Friday’s much stronger-than-anticipated...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email