According to the quoted source, the ECB has begun to remove incentives at a slow pace this year, but the explosion of inflation is now putting pressure on ECB officials to quickly put an end to unconventional monetary support measures.
The main obstacle so far has been that long-term forecasts show that inflation will return below the 2% target set by the ECB, but the latest estimates presented to ECB officials at their April 14 meeting showed that 2024 inflation will be above the target set by the ECB, informs Agerpres.
Members of the Governing Council have long criticized the ECB for underestimating inflation, which reached a record high of 7.5% last month, and believe the new forecasts are a step towards recognizing reality.
“When ECB chief economist Philip Lane unveiled the new figures, many applauded,” Reuters sources said.
ECB President Christine Lagarde said on Friday that bond purchases should be completed in the third quarter, adding that an interest rate hike this year is possible.
Almost all sources quoted by Reuters said they expect at least two interest rate hikes this year, and some say a third hike is possible, but it all depends on how markets react to ECB decisions. Markets have already started to consider an increase in the cost of credit by 85 basis points this year, which would mean more than three increases of 25 basis points each, which would allow interest on deposits, which is currently at minus 0.5%, to return to positive territory for the first time since 2014.
But interest rates could rise only after the ECB ceased bond purchases, and all sources consulted by Reuters, who wished to remain anonymous, said that this would happen on 30 June or 1 July. This means that the ECB would be in a position to raise interest rates at its monetary policy meeting on 21 July.
“If we do not have a dramatic change of perspective, I would bet on an increase in July,” said one source.
However, other sources said that they would still prefer to wait until the September meeting, one of the reasons being that the new forecasts will be available then and another is the desire to avoid an important monetary policy decision during the period. summer vacation, when liquidity is lower.
The last time the ECB raised monetary policy interest rates was in 2011, just before the onset of the eurozone debt crisis, a move that many consider the biggest monetary policy mistake the Frankfurt institution has ever made.
“It simply came to our notice then. Some are afraid to make a similar mistake, “said one source.
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