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ECB could outline rate hike plan for coming months in June - Müller

Wednesday, May 11, 2022
ECB could outline rate hike plan for coming months in June - Müller © Reuters. FILE PHOTO: The European Central Bank (ECB) logo in Frankfurt, Germany, January 23, 2020. REUTERS/Ralph Orlowski

By Balazs Koranyi

FRANKFURT (Reuters) - The European Central Bank should raise interest rates from record lows in July but could already outline its rate expectations for the coming months at its June 9 meeting, ECB policymaker Madis Müller said.

With euro zone inflation at a record high 7.5%, nearly four times the ECB's target, pressure is growing on the bank to claw back stimulus and several policymakers are pushing for faster "normalisation", including the end of asset buys and rate hikes.

In the first step, bond purchases need to end in early July, as stipulated by the bank's guidance, but bringing this move forward is also possible, according to Müller, who is Estonia's central bank governor.

"We could even discuss if we should end purchases a few weeks earlier," Müller said. "The real issue is interest rate increases and we shouldn’t have much of a delay there either."

"The recent data confirm that the monetary policy stance is not appropriate given where inflation is and given inflation expectations," Müller told Reuters in an interview.

While a rate hike in June would break the bank's promise to end bond buys first, the ECB could already send a strong signal on June 9 about the imminence of a rate rise, which would be the first in over a decade.

"I’m not sure we should be deciding on interest rate hikes then (in June)," Müller. "But perhaps we could indicate our expectation for interest rates. From my perspective, we could focus the following meeting (on July 21) on interest rates."

ECB board member Isabel Schnabel and Bundesbank chief Joachim Nagel, influential voices on the rate-setting Governing Council, have both made the case for a July rate increase, as did a host of other policymakers.

POSITIVE RATES

The first increase should then be followed by several more this year and the deposit rate, now at minus 0.5%, could be back in positive territory by the end of the year, Müller added.

"Even if we go by 25 basis point increments, we may get to a positive rate by the end of the year. For the time being, 25 basis points would be an appropriate increment."

The U.S. Federal Reserve hiked rates last week by 50 basis points and similar moves are likely at its next two meetings. But the European job markets is cooler and the war in Ukraine has made a bigger impact on the 19-country euro zone, so the ECB can afford to be more gradual.

Markets currently price in 90 basis points of rate hikes for the rest of the year or between three and four 25-basis-point moves.

Müller said he was not worried about the widening spread between the yields of the bloc's core and periphery since this was a natural, expected response of markets.

The bank should nevertheless contain any "unwarranted" widening of spreads, even if it should not pre-commit any new tool to tackle market turbulence.

"When it comes to specifying how such a tool would work, I’m not sure we can do that in advance," Müller said. "It needs to be designed specifically to the nature of the situation at hand."

For the text of the Q&A with Müller, click on:

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18-05-2022 14:44:32 (UTC+7)

EUR/USD

1.0518

-0.0029 (-0.28%)

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Moving Avg:

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EUR/USD

1.0518

-0.0029 (-0.28%)

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GBP/USD

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USD/JPY

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US Coffee C Futures

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US Small Cap 2000

1,840.30

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9.495

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Sell (2)

 EUR/USD1.0518Sell
 GBP/USD1.2414↑ Sell
 USD/JPY129.29↑ Buy
 AUD/USD0.7012Neutral
 USD/CAD1.2831↑ Buy
 EUR/JPY135.97↑ Buy
 EUR/CHF1.0490↑ Buy
 Gold1,814.57↑ Buy
 Silver21.641↑ Buy
 Copper4.2088↑ Buy
 Crude Oil WTI111.14↑ Buy
 Brent Oil113.10↑ Buy
 Natural Gas8.198↑ Buy
 US Coffee C228.63Neutral
 Euro Stoxx 503,735.45↑ Sell
 S&P 5004,088.85↑ Buy
 DAX14,168.63↑ Sell
 FTSE 1007,514.89Sell
 Hang Seng20,575.00Buy
 Small Cap 20001,840.30Neutral
 IBEX 358,504.65↑ Sell
 BASF50.530Neutral
 Bayer64.04↑ Sell
 Allianz201.88↑ Sell
 Adidas182.02↑ Sell
 Lufthansa6.779Neutral
 Siemens AG116.26↑ Sell
 Deutsche Bank AG9.495Buy
Mua/Bán 1 chỉ SJC
# So hôm qua # Chênh TG
SJC Eximbank6,825/ 6,925
(0/ 0) # 1,836
SJC HCM6,825/ 6,925
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