ECB rate hike should be ‘more gradual’ than 50 basis points, says Visco

A symphony of light made up of bars, lines and circles in blue and yellow, the colors of the European Union, illuminates the southern facade of the headquarters of the European Central Bank (ECB) in Frankfurt, Germany, on December 30, 2021 REUTERS/Wolfgang Rattay

KOENIGSWINTER, Germany, May 20 (Reuters) – The European Central Bank is expected to raise its key rate out of negative territory with a first decision in July, but the process should be “more gradual” than some suggest, the policymaker said. of the ECB, Ignazio Visco. Friday.

Financial markets now expect to see 105 basis points of ECB rate hikes by the end of the year, raising their bets since Dutch central bank chief Klaas Knot said that a 50 basis point move could be needed if inflationary pressures increase.

“I have no problem with the exit but I think it should be more gradual than someone might have thought,” Visco, who heads Italy’s central bank, told a news conference after a meeting. financial decision makers from the Group of Seven in Germany.

“It’s a phased exit process. There’s nothing wrong if it starts in July,” Visco added.

With inflation holding steady at a record high of 7.4%, nearly four times the ECB’s target, all but a handful of policymakers have argued for a rate hike in July, the ECB’s first hike in more than a decade.

Bundesbank President Joachim Nagel, also present at the G7 meeting, agreed that the first rate move could come in July, followed by further hikes soon after.

Several ECB policymakers have also argued for pushing the minus 0.5% deposit rate back into positive territory this year, which would involve at least three 25 basis point moves.

However, the exit from negative rates has become incontrovertible, Visco argued, saying “virtually everyone” on the Board of Governors charged with setting rates agrees with the idea.

French central bank chief Francois Villeroy de Galhau, one of the policymakers publicly advocating for a positive policy rate by the end of the year, said the ECB’s biggest threat was inflation. .

“The number one threat in the near term is inflation… It’s our responsibility as central banks and we accept that responsibility and we are committed to getting inflation under control,” Villeroy said on another newscast. on the sidelines of the G7 meeting.

The ECB deposit rate has been in negative territory since 2014.

Reporting by Francesco Canepa and Leigh Thomas; Written by Balazs Koranyi; Editing by Louise Heavens and Hugh Lawson

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