ECB Justifies Further Interest Rate Hikes

The data received so far suggests that the room for maneuver to slow the pace of interest rate adjustments remains limited, even as we approach the neutral rate estimates.”

Isabel Schnabel, member of the ECB executive committee.

Policy makers at the European Central Bank (ECB) fear inflation will take hold at their latest meeting, so rates will have to continue rising, the minutes of the Oct. 26-27 meeting said.

The ECB raised interest rates 75 basis points (bp) to 1.5% to fight inflation, bringing the total rate hike to 200 bp since July and marking the biggest monetary tightening in its history.

The authorities also contemplated reducing the bank’s balance sheet by 9 trillion euros, which is another step towards ending a decade of public debt purchases.

“The need to raise rates further to reach the 2% inflation target was made clear,” the minutes mentioned.

The ECB added that some of its officials expressed the view that monetary tightening will likely have to continue after the monetary policy stance has normalized and moved into largely neutral territory.

The 75 bp interest rate increase was supported by a large majority and few supported a 50 bp increase.

While the ECB has pledged to continue raising rates, markets are now expecting a 50bp hike on December 15, as a number of policymakers suggested a slowdown after back-to-back 75bp hikes.

A possible compromise may be that a lower rate hike is accompanied by an early start to reduce the portfolio of bonds purchased under the ECB’s Asset Purchase Program of 3.3 trillion euros, in a process known as tightening. quantitative.

Raise rate by 75 bp

Bank of Sweden raises the price of money

The Bank of Sweden increased its interest rate by 75 basis points to 2.5% and warned that next year there will be others to continue fighting inflation.

The central bank, which in February expected rates to stay at zero, was surprised by rising prices this year, triggered by the pandemic and the war in Ukraine.

Figures for October showed that core inflation rose 7.9% annually, forcing a more severe change in monetary policy.

“Now we see that there are one or more increases in the future (…) We know it will hurt but it is the best we can do today so that the economy returns to 2% inflation,” said Ingves.