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ECB leans for historic rate hike amid record inflation

  • Post category:Economy News
  • Reading time:2 mins read

But if a central bank is slow to adapt its policy, “the costs can be considerable“, admitted Ms. Schnabel, acknowledging that the ECB had believed for too long that the inflationary shock would be temporary. But the public must keep the “confidence in our ability to preserve purchasing power“, insisted Ms. Schnabel.

US Federal Reserve rates are between 2.25 and 2.50% and a 75 basis point hike is looming on September 21st.

For the ECB, whose rates range between 0% and 0.75%, the turn of the screw should continue “until key rates reach a more +neutral+ level, between 1% and 2%“, according to Frederik Ducrozet, Chief Economist at Pictet Wealth Management.

A rate is said to be neutral when it neither stimulates nor slows down the economy.

The ECB will base itself on Thursday on new economic forecasts at a time when most institutes see the euro zone entering recession this winter.

We may well be heading for one of the toughest winters in generations“, warned on Wednesday the European Commissioner for the Economy, Paolo Gentiloni.

The problem is that an aggressive sequence of the ECB on its rates will increase the borrowing conditions of the countries of the euro zone considered vulnerable, such as Italy. The institute may have to draw sooner or later its new tool, presented this summer, intended to nip speculative attacks on debt in the bud, according to Holger Schmieding, economist at Berenberg.