ECB officials assess possibility of less rate hikes

It’s reported that the European Central Bank (ECB) officials may reduce the pace of interest rate increases. Thus, the hike, which will take place next month, could be 50 basis points.

Most likely, officials lack the determination to increase the size of 75 basis points. However, it’s a mere guess, since discussions on such issues tend to be private. Thus, a smaller increase will be preferred if there are no major spikes in inflation.

Among the reasons for a lower hike are highlighted such as a potential recession, the hope for reduced pressure on consumer prices and the belief that raising the deposit rate will bring it closer to a neutral level.  And the question of ECB balance-sheet reduction is also raised.

ECB officials have enough time to think about the issue, since the next meeting of the bank will be held only on December 15. Many are expecting that the rate will be raised by 75 basis points. For example, such a desire is expressed by the market, and officials, supporters of tougher policies, only support this desire.

Robert Holzmann, Governor of the central bank of Austria, has previously been a strong advocate of large rate hikes. However, he spoke relatively little about the coming increase, as did Joachim Nagel, President of the central bank of Germany. Estonia and Latvia have suggested either a 50 or 75 basis points increase, but haven’t given an exact figure.

Francois Villeroy de Galhau, President of the Bank of France, didn’t name the exact number of basis points, but suggested that the new rate would be around 2%. Thus, it can be concluded that Galhau assumed an increase of 50 basis points.

The final interest rate decision will be influenced by inflation data, which will be available on November 30. Moreover, according to the statement by ECB Vice-President Luis de Guindos, the data will also influence quarterly forecasts. The Vice-President declined to comment on the size of the next increase.

The falling U.S. inflation might have reassured ECB officials as well. Their counterparts at the U.S. Fed, in turn, suggested that the ECB would raise rates by fewer basis points.

Inflation in the Eurozone is at a record high level of 10.7%. The Vice-President explicitly stated that price increases won’t stop in the first half of 2023.