Hike rates

Traders are back to betting the ECB will hike rates to zero in 2022

(Bloomberg) —

Traders are back to betting that the European Central Bank will hike interest rates to zero this year as officials seek to rein in the fastest pace of inflation on record in the euro zone.

Money markets are now pricing in two quarter-point hikes in 2022, down from less than one such hike earlier this month, according to interest rate swaps. The bank’s key rate is minus 0.5% and has been negative since 2014.

The price revision comes after Federal Reserve peers accelerated their tightening outlook on Wednesday and attention turned to the inflationary impact of the conflict in Ukraine. The ECB also signaled a faster withdrawal from asset purchases on March 10, a sign to some investors that rate hikes are approaching.

Adding to the urgency to tighten policy, the ECB’s Klaas Knot said market expectations of an interest rate hike “later this year” are “quite realistic”, according to an interview with Les Echos. . Last week, he said he wouldn’t rule out two rate hikes this year if inflation expectations rise.

His colleague Robert Holzmann said he would have preferred to change ECB guidance to allow a rate hike before net asset purchases end, in a separate interview in Austria’s Kronen Zeitung.

Traders had first positioned themselves for two 25 basis point hikes in 2022 after the ECB’s February meeting, only to erase those bets amid fears the war would further dampen growth.

Consumer prices in the region rose 5.9% annually in February. The ECB last raised interest rates in 2011.

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