Advocates of a rise in interest rates in the euro zone are beginning to raise their voices within the Executive Committee of the European Central Bank (ECB). The vice president of the institution, Luis de Guindos, has indicated in this regard in an interview with Bloomberg, published this Thursday, that “theoretically everything is possible.” However, he has clarified that the increase in interest rates does not have to be undertaken “automatically once the debt purchases are completed”.
“We have some time. My opinion is that the asset purchase program should end in July and that for the first interest rate hike we should see our projections, the different scenarios and, only then, decide. Nothing has been closed at the moment”, added De Guindos. Therefore, the maneuvers of the ECB this summer will depend on the June data. “From today’s perspective, in July it is possible and in September or later as well. We will look at the data and only then will we decide”, he concluded.
Market traders are betting on a three-quarter point hike by the European Central Bank this year, estimating record inflation will force officials to raise borrowing costs above zero. Markets are pricing in the 75 basis point adjustment adopted by the ECB in December, according to the contracts swap (insurance that makes an operation subject to an interest rate) linked to the short-term interest rate of the euro.
That would turn the deposit rate positive for the first time since 2012 from a current record low of -0.5%. Euro zone inflation beat estimates, rising 7.5% in March from a year earlier, due to Russia’s invasion of Ukraine, which further fueled energy costs.
The price revision comes after Governing Council member Pierre Wunsch said rates could be raised to zero or positive before the end of this year, as part of a “restrictive” policy by the bank to control price increases.
Similarly, the governor of the Bank of Latvia, Martins Kazaks, has assured that a rate hike is possible in July, echoing the calls of the president of the Bundesbank, Joachim Nagel, who has been in favor of raising rates in the third trimester.
He knows in depth all the sides of the coin.
President Christine Lagarde signaled last week that the body’s next meeting in June will start the clock ticking toward “monetary normalization.”