ECB’s Visco says July ‘perhaps’ right time for first interest rate hike


Governing ECB Council member Ignazio Visco: “We can move gradually, raising interest rates in the coming months,” Visco said in an interview with Bloomberg Television yesterday. While June is too early as that is when the ECB will end net bond purchases, “we will move after that – after that, means perhaps July.”

THE European Central Bank (ECB) might be ready to increase interest rates for the first time in more than a decade in July, says Governing Council member Ignazio Visco.

“We can move gradually, raising interest rates in the coming months,” Visco said in an interview with Bloomberg Television yesterday. While June is too early as that is when the ECB will end net bond purchases, “we will move after that – after that, means perhaps July.”

ECB officials have grown increasingly alarmed about record inflation, with consensus building to start raising borrowing costs in July. Visco, who heads Italy’s central bank, is considered one of the more dovish Governing Council members.

“Now I think that we can move out of this negative territory,” Visco said, referring to the deposit rate, which has been below zero since 2014.

“Gradual means in my view that we have to understand that we should move without creating uncertainty in the market.”

Money market wagers on ECB policy tightening were broadly steady, pricing 34 basis points of rate hikes by July and four quarter-point increases by year-end.

German two-year bonds, which are the most sensitive to monetary policy, briefly erased declines before yields rose one basis point to 0.39%.

With most major global central banks already lifting borrowing costs, even more dovish ECB officials like Spain’s Pablo Hernandez de Cos have said that a first hike should happen shortly after net bond-buying ends early in the third quarter.

Eurozone consumer prices surged 7.4% from a year ago last month, holding at an all-time high, data released this week showed.

The “single most critical factor” for monetary policy now is inflation expectations, because letting them get out of control would be “very damaging,” Governing Council member Olli Rehn said Wednesday.

Becoming the first Governing Council member to do so, Visco’s Dutch colleague, Klaas Knot, this week floated the idea of lifting rates by a half-point if inflation data worsen.

Analysts polled by Bloomberg expect a first increase of only half that magnitude. The deposit rate – currently minus 0.5% – will, however, rise above zero this year, they said, aligning their views with the increased sense of urgency among ECB officials. — Bloomberg

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