According to reports, the ECB will shortly raise rates for the first time in more than a decade, according to a member of the central bank’s governing council.
The ECB has been criticized for taking a less forceful monetary policy approach than other central banks. Expectations of a rate hike have risen in recent months as inflation has continued to rise, with market participants now predicting at least four rate hikes by the end of the year.
“We are on the right path,” Joachim Nagel, president of Germany’s Bundesbank and one of the ECB’s more hawkish members, told CNBC’s Annette Weisbach.
“In our very important meeting in March we decided to end our net asset purchases and in the June meeting, dependent on data, we will decide to stop maybe — and I say this because this data are speaking a very convincing language here — that we stop our purchases and afterwards I believe we will see rather soon the first rate hikes,” he said.
His remarks suggest that the first rate hike could occur in July, after the ECB has discussed updated economic predictions released the previous month.
Since joining the post in January, Nagel has been warning about increased inflation and now sees more momentum toward raising interest rates.
“I pretty much appreciate that many colleagues now from the Governing Council are joining my position here,” he said.
His remarks echo those of Francois Villeroy de Galhau, the president of the Bank of France and a fellow ECB member, who predicted a gradual hike in interest rates beginning this summer.
Meanwhile, Ignazio Visco, the governor of the Bank of Italy and a prominent ECB “dove,” said a rate hike “may be in the third quarter or at the end of the year, but it must be gradual.”
As consumer prices rise, generating a cost-of-living crisis, central banks are under enormous pressure to bring inflation down.
The Federal Reserve of the United States boosted its benchmark interest rate by 0.5 per cent earlier this month, marking the second of what is likely to be a series of increases this year.
Inflation in the United States is at a 40-year high, with the consumer price index climbing 8.3 per cent year on year in April.
Meanwhile, the Bank of England hiked rates for the fourth time since December, when it began its post-Covid normalisation process. Despite this, inflation in the United Kingdom has remained stubbornly high, reaching a 40-year high of 9% on Wednesday.
The ECB, on the other hand, has resisted rate hikes so far, claiming that pricing pressures will ease in the second half of the year.
Inflation in the euro zone touched a six-month high in April, as the protracted conflict in Ukraine and its impact on Europe’s energy supply impacted the region’s economy.
In April, headline inflation in the 19-member zone hit 7.5 per cent, up from 7.4 per cent in March.
(Adapted from CNBC.com)