Hike rates

ECB may raise rates in July to fight extreme inflation – Schnabel

Isabel Schnabel, a member of the German economic expert advisory board, attends the 29th Frankfurt European Banking Congress (EBC) at the old opera house in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski

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FRANKFURT, May 3 (Reuters) – The European Central Bank may have to raise interest rates as early as July to prevent “extremely high” inflation from taking hold, ECB executive board member Isabel Schnabel told the newspaper on Tuesday. German Handelsblatt.

Inflation hit a record high of 7.5% last month, almost four times the ECB’s target, and even underlying price growth, which filters out volatile energy and fuel prices. , is now approaching 4%, suggesting that strong price growth could persist even if oil prices retreat .

“Talking is no longer enough, we have to act,” said the Handelsblatt quoting Schnabel. “Looking ahead to today, a rate hike in July is in my view possible.”

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A precursor to any rate hike must be an end to bond buying, and that could come in late June, said Schnabel, head of market operations at the ECB.

Conservatives on the 25-member ECB Governing Council are increasingly calling on the central bank to rein in its ultra-loose inflation-fighting policy, and most are planning two to three rate hikes before the end of the year. Read more

The ECB last raised rates in 2011 and has kept its benchmark deposit rate, now minus 0.5%, in negative territory since 2014.

Markets are currently pricing in 97 basis points of rate hikes for the rest of the year, indicating increases are expected at every policy meeting starting in July.

The ECB will then meet on June 9, when asset purchases are expected to end, followed by a meeting on July 21.

Schnabel said she did not expect the euro zone to fall into stagflation – a period of zero growth coupled with high inflation – but said the ECB’s main role was to fight rapid growth prices and not to support the economy.

She added, however, that the ECB would act on any unwarranted increase in the yield spread between the core and the periphery of the bloc.

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Reporting by Balazs Koranyi Editing by Chris Reese and Leslie Adler

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