Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

ECB eyes jumbo rate hike to fight inflation even as debtors suffer

Economy Sep 29, 2022 12:48PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: The new governor of the Lithuanian central bank, Gediminas Simkus, poses for a picture in Vilnius, Lithuania, April 1, 2021. REUTERS/Ints Kalnins/
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio

By Francesco Canepa and Balazs Koranyi

VILNIUS/FRANKFURT (Reuters) - ECB policymakers voiced more support on Thursday for another big interest rate hike as inflation in the euro zone's biggest economy hit double digits, blasting past expectations and heralding another record reading for the bloc as a whole.

The European Central Bank has raised rates by a combined 125 basis points over its last two meetings and promised further increases as sky-high food and energy prices filter into the rest of the economy and intensify underlying price pressures.

Strengthening the case for another 75 basis point increase, German inflation jumped to 10.9% this month, far beyond expectations for a reading of 10%. That suggests the figure for the wider 19-country euro zone, due on Friday, is also likely to exceed the predicted 9.6%.

Germany's red-hot inflation

"My choice would be 75 (basis points)," ECB policymaker Gediminas Simkus told Bloomberg TV on the sidelines of a conference in Vilnius "But 50 is the minimum."

Colleagues including Slovakia's Peter Kazimir, Austria's Robert Holzmann and Finland's Olli Rehn have all put 75 basis points on the table in recent days, even though the ECB's next meeting on Oct. 27 is still nearly a month away.

But Simkus, like Holzmann a day earlier, pushed back on suggestions of a 100 basis point move, suggesting that a repeat of this month's 75 basis point hike is the upper limit of hawks' appetite even if price pressures are far from abating.

Speaking later on CNBC, ECB chief economist Philip Lane said the central bank should avoid doing "too much in one go" and increase rates over several months after what he described as "sizeable moves" in the last two meetings.

"There is no easing in sight, and next year the inflation rate is only likely to fall because energy prices are unlikely to rise again as strongly as this year, partly due to government intervention," Commerzbank (ETR:CBKG) economist Ralph Solveen said of the German inflation figures.

While few governors ventured to estimate where interest rate hikes could end, Spain's Pablo Hernandez de Cos said on Thursday that models suggest a significantly lower terminal rate than markets now expect.

"On the basis of current information, the median terminal rate value across models is at 2.25%-2.50%," de Cos said.

Markets currently expect rates to hit 2% by the end of the year then rise to around 3% next spring.

Chief economist Philip Lane said the ECB "may well" have to go into restrictive territory, meaning a level of interest rates that curbs the economy. That is generally seen as a level of interest rates above 2%.

Rate hike talk is intensifying even as recession fears rise. The European Commission's economic sentiment indicator, released on Thursday fell more sharply than feared, reinforcing expectations that the bloc could be in recession by the fourth quarter.


Lithuania's Simkus called on the ECB to start talks "as soon as possible" on reducing its balance sheet, a view echoed by his Estonian peer Madis Müller at the same event.

This would probably be done by not replacing some of the trillion euros' worth of bonds the ECB bought over the past decade - when it was trying to raise price growth that was too low - as they mature.

But Portugal's Mario Centeno and Spain's Hernandez de Cos pushed back on that idea, fearing it would destabilise the bond market.

"Quantitative tightening could potentially cause market turmoil," de Cos said in a speech in Bilbao. "This could imperil the policy normalisation path at a time in which all our efforts should be focused on it."

Indeed, borrowing costs for debt-laden countries like Italy have already been soaring, triggering some speculation the ECB may step up its buying via an emergency programme.

But sources have told Reuters this wasn't seen as needed at present.

De Cos said that if the ECB started to run down its balance sheet sooner than markets now expect, that would lower the terminal rate, which suggests a trade-off between rate hikes and balance sheet operations.

ECB eyes jumbo rate hike to fight inflation even as debtors suffer

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other 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, don’t trash it.

  •           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. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. 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’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
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.
Comments (1)
Sevantilal Patel
Sevantilal Patel Sep 29, 2022 1:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
are they blind. inflationists 10 percent and euro RePo at 2*25.they are robbing senior citizens and cash requirements holders.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
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'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
Sign up with Email