No tapering: ECB member Knot: “Multiple rate hikes of 50 basis points” planned – Lagarde reiterates hawkish stance | news

The ECB is planning “multiple rate hikes of 50 basis points,” Knot said in an interview with CNBC on the sidelines of the World Economic Forum in Davos. The ECB will not stop after a single 50 basis point move, he assured. The ECB currently only sees the risk of doing too little. “I would take our statements seriously.” Knot is considered an outspoken “hawk” within the Governing Council.

The Bloomberg news agency reported on Tuesday, citing unnamed ECB officials, that the ECB would raise interest rates by 50 basis points in February as announced, but that only 25 basis points are being flirted with for March. That had caused bond yields to fall noticeably.

In December, ECB President Lagarde announced rate hikes of 50 basis points until further notice because real interest rates had fallen due to lower bond yields. This ran counter to the central bank’s intention to tighten financing conditions and thereby demand and inflation to break.

ECB Council member Francois Villeroy de Galhau also contradicted the Bloomberg story on Wednesday. Lagarde himself will take part in a panel this Thursday from 11.30 a.m. in Davos.

Lagarde: ECB will remain hawkish long enough

According to its President, the European Central Bank (ECB) will Christine Lagarde maintain their recent monetary policy stance. “We are determined to bring inflation down to 2 percent in time. We will stay on course until we have been in restrictive territory long enough,” Lagarde said in a panel discussion at the World Economic Forum in Davos.

According to Lagarde, the ECB does not just look at headline inflation. “Inflation is way too high by any measure,” she said. Economic activity is falling, but is much better than expected. The euro area economy is likely to contract very little. “The job market is more dynamic than ever,” she added.

ECB: Many in the council wanted a rate hike of 75 points in December

During its deliberations on December 14 and 15, 2022, the Governing Council of the European Central Bank (ECB) was only able to agree on an interest rate hike of just 50 basis points because further sharp interest rate hikes were announced at the same time. As can be seen from the minutes of the meeting, which have now been released, many Council members originally wanted a 75 basis point step and some stuck to this request to the end.

“Many members initially supported a 75 basis point hike in the ECB’s key interest rates, as inflation has clearly been stuck at too high levels for too long and current market expectations and financial conditions clearly stand in the way of a timely return to the ECB’s 2% inflation target.” , says the record.

The rate hike of 50 basis points that was ultimately decided was in line with widespread expectations, but was apparently tighter than assumed. The ECB had raised interest rates by 75 basis points at each of the two previous meetings.

The hawks among the Council members demanded that interest rates should again be higher than expected by the markets, i.e. by 75 basis points. However, some Council members agreed to agree to a smaller rate hike if a majority found themselves in favor of signaling further “significant and steady” rate hikes.

In the financial markets, this was correctly interpreted as an attempt to reverse the easing of financing conditions that had occurred in the weeks before, as the minutes show.

More recently, however, doubts about the tough course of the ECB had arisen again after Bloomberg, citing unnamed ECB officials, reported that an interest rate hike of just 25 basis points was being flirted with for March.

However, in a panel at the World Economic Meeting in Davos, Lagarde assured that the ECB would remain firm. “We will stay the course until we have been in restrictive territory long enough to bring inflation down to 2 percent in time,” she said.

By Hans Bentzien

FRANKFURT (Dow Jones)

Image sources: einstein / Shutterstock.com, Jorg Hackemann / Shutterstock.com

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