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FRANKFURT, Nov 30 (Reuters) - Euro zone inflation eased far more than expected in November, raising hopes that sky-high price growth is now past its peak and bolstering the case for a slowdown in European Central Bank rate hikes next month. The overall picture is more nuanced, however, as energy prices accounted for the bulk of the slowdown while food price inflation, a key worry, continued to accelerate, data from Eurostat showed on Wednesday. Underlying price growth, excluding volatile food and energy prices, remained high, which is likely to trigger warnings from conservative central bankers, while food price growth, a key concern for governments, shows little sign of peaking. Inflation for processed food, alcohol and tobacco, a key category, meanwhile accelerated to 13.6% from 12.4%. Initially fuelled by supply bottlenecks in the post-pandemic reopening, inflation is now driven by soaring food prices after a poor harvest and sky-high energy costs in the fallout of Russia's war in Ukraine.
Euro zone credit growth remains brisk despite gloomy outlook
  + stars: | 2022-11-28 | by ( )   time to read: +1 min
FRANKFURT, Nov 28 (Reuters) - Bank lending to euro zone companies held steady, maintaining the sector's biggest borrowing binge in over a decade, despite rising interest rates and a looming recession, European Central Bank data showed on Monday. Lending to businesses in the 19-country euro area expanded by 8.9% in October, unchanged on September when it rose to its highest rate since early 2009, fresh data showed. Household credit growth meanwhile slowed to 4.2% from 4.4%. The monthly flow of loans to companies, however, slowed sharply, to 24.0 billion euros from 36.6 billion a month earlier with the flow of short term loans coming to a standstill. Growth in the M3 measure of money circulating in the euro zone, meanwhile slowed to 5.1% from 6.3%, coming well under expectations for 6.2% in a Reuters survey.
ECB at risk of not doing enough to fight inflation, Knot says
  + stars: | 2022-11-28 | by ( )   time to read: +2 min
"My worry is still inflation, inflation, inflation," Knot, an outspoken policy hawk told a conference. "As long as the risks to our inflation outlook are so clearly tilted to the upside, I think the risk of us doing too little is clearly more pronounced than us doing too much," he added. For now, the ECB is still providing accommodation, Knot argued, and the next step will be to get into a territory that restricts growth. "We will get weaker growth, that's for sure. But we also need weaker growth to bring inflation back to target."
Market betting has been swinging between a 50- and a 75- basis-point increase when policymakers meet on Dec. 15. "It's extremely exciting but predicting the ECB for a market participant has become impossible," Carsten Brzeski, global head of macro at ING, said. That saves it from more painful changes of tack after ECB President Christine Lagarde went from all but ruling-out rate hikes this year to presiding over the steepest tightening cycle in the euro's history. But Lane said in a blog post on Friday it may "overstate" how persistent inflation may be. "Inflation is being driven by factors they can't control," he added, citing energy prices, geopolitical tensions and supply-chain disruptions as some of them.
ECB's Lane plays down wage, core inflation fears
  + stars: | 2022-11-25 | by ( )   time to read: +2 min
FRANKFURT, Nov 25 (Reuters) - Euro zone wage growth could keep pushing up inflation for years but this does not signal a permanent shift in wage dynamics and current indicators underlying inflation may be misleading, European Central Bank chief economist Philip Lane said on Friday. "This means that, even after energy and pandemic factors fade out of inflation measures, wage inflation will be a primary driver of price inflation over the next several years." Still, this a time-limited catch-up and should not be misinterpreted to signal a more permanent shift in wage dynamics, Lane wrote. "The current values of these measures may overstate the medium-term persistent component of inflation in this highly atypical environment," Lane said. "It is unlikely that the standard measures of underlying inflation are sending the same signals about the likely persistence of inflation dynamics than under more standard macroeconomic conditions," he added.
Emerging economies started hiking before the Fed, and quickly, partly because their currencies had weakened against the dollar, raising funding costs and importing inflation. That had quickly fed through to prices, especially energy and some food commodities that are generally traded in dollars. "Total reserves in the emerging markets had fallen by over $400 billion, down 7%, this year as of September." ECB & BOJAt the ECB, the Fed's signal bolsters an already strong case for more measured rate hikes after back-to-back 75 basis point moves and eases growth concerns. Slower Fed rate hikes also help the Bank of Japan, whose ultra-low rates have been criticised for fuelling a sharp yen decline that inflates the cost of imports.
ECB's Schnabel pushes back on smaller rate hikes
  + stars: | 2022-11-24 | by ( )   time to read: +3 min
However Schnabel, the most influential voice in the hawkish camp, said this was premature and could even prove counter-productive. "Incoming data so far suggest that the room for slowing down the pace of interest rate adjustments remains limited, even as we are approaching estimates of the 'neutral' rate," she told an event in London. "The extraordinarily large degree of uncertainty surrounding such estimates implies that they cannot serve as a yardstick to inform the appropriate pace of interest rate adjustments. Dutch governor Knot expressed doubts over market expectations for the ECB's deposit rate, currently at 1.5%, to peak at 3%. In all honesty, I'm not sure about that," Knot told a hearing at the Dutch parliament.
FRANKFURT, Nov 24 (Reuters) - Risks in the German financial system are building as the economy heads for a recession and struggles with rising interest rates and sky-high energy prices, but a correction in the housing market is not imminent, the Bundesbank said on Thursday. "The macro-financial environment has deteriorated substantially," the Bundesbank said in a Financial Stability Review. Still, the Bundesbank did not expect a significant correction in house prices, which were in the past seen 15% to 40% overvalued. "A worsening energy crisis, a sharp economic slump and abruptly rising market interest rates could put the German financial system under considerable pressure," the bank added. Extreme volatility in energy prices sharply increased the collateral requirements of central counterparties in derivatives trading but government measures cushioned the liquidity shortage and the overall supply of credit "has worked well", it said.
ECB accounts show inflation fears justifying more rate hikes
  + stars: | 2022-11-24 | by ( )   time to read: +2 min
FRANKFURT, Nov 24 (Reuters) - European Central Bank policymakers feared that inflation may be getting entrenched at their last policy gathering so rates would need to rise further, the accounts of the Oct 26-27 meeting showed on Thursday. The ECB raised rates by 75 basis points to 1.5% at the meeting to fight sky high inflation, bringing its total hikes to 200 basis points since July for its fastest policy tightening on record. "It was also clear that rates would need to be raised further to reach a level that would deliver on the ECB’s 2% medium-term target," the accounts of the meeting showed. The 75-basis-point rate hike was supported by a large majority, although a "few" policymaker wanted a smaller, 50-basis-point move. Even if the ECB slows down, markets see the deposit rate doubling to 3% next year as inflation, now at 10.6%, will take years, possibly until 2025, to fall back to the ECB's 2% target.
FRANKFURT, Nov 18 (Reuters) - The European Central Bank must continue to raise interest rates decisively and should start letting its oversized holding of government debt expire from the start of 2023, Bundesbank President Joachim Nagel said on Friday. "We must resolutely raise our key rates further and adopt a restrictive stance," Nagel, a powerful conservative, or policy hawk, said in a speech. Complementing rate hikes, the ECB needs to start running down the trillion of euros worth of government debt it hoovered up over the past decade, when inflation was still too low. "We should start reducing the size of our bond holdings at the beginning of next year by no longer fully reinvesting all maturing bonds," Nagel said. The ECB holds around 5 trillion euros worth of bonds and said it would start talks in December on how and when to run down the 3.3 trillion euros in its Asset Purchase Programme.
Euro zone banks to repay 296 bln euros in ECB loans
  + stars: | 2022-11-18 | by ( )   time to read: +1 min
FRANKFURT, Nov 18 (Reuters) - Euro zone banks are set to repay 296 billion euros in multi-year loans from the European Central Bank next week, the ECB said on Friday, in its latest step to fight runaway inflation in the euro zone. This is less than the roughly 500 billion euros many analysts expected for the first voluntary repayment window of the ECB's Targeted Longer Term Refinancing Operation (TLTRO) since terms were changed last month. The ECB has given banks an incentive to get rid of those loans by taking away a rate subsidy last month. It was its first move to mop up cash from the banking system and the first step towards unwinding its massive bond purchases. Banks have a further repayment window next month.
FRANKFURT, Nov 16 (Reuters) - The European Central Bank must prioritize its fight against high inflation because that will in turn improve the currency bloc's overall financial stability, ECB Vice President Luis de Guindos said on Wednesday. "It's very difficult to have financial stability without price stability," he told a news conference. "I think that the main risk now for financial stability, for growth, is to have inflation at very high levels." Critics have said that rapid rate hikes by the ECB are fuelling market volatility and exacerbating a downturn, so the ECB's own actions may be harming stability. Reporting by Balazs Koranyi; Editing by Toby ChopraOur Standards: The Thomson Reuters Trust Principles.
FRANKFURT, Nov 15 (Reuters) - Euro zone banks may see a surge in soured loans as rapid inflation and rising interest rates hit household incomes, particularly among the bloc's poorest, the European Central Bank said in a fresh study on Tuesday. The ratio of non-performing loans stood at 2.35% at the end of the second quarter, suggesting a one-third increase in the worst case. Banks in Italy, Portugal, Greece and Cyprus could suffer some of the biggest increases in non-performing loans while France, Ireland and Luxembourg could be among the best performers, the ECB's study showed. "While outright defaults are likely to increase only slightly, the downside risks to banks’ asset quality are increasing, especially in vulnerable countries," the ECB said. "Lower-income households are the main source of defaults and increases in NPL ratios may vary across countries," the ECB added.
FRANKFURT, Nov 14 (Reuters) - Euro zone wage growth may finally be picking up but longer-term inflation expectations are still anchored around the European Central Bank's 2% target, ECB Vice President Luis de Guindos said on Monday. "Incoming wage data and recent wage agreements indicate that wage dynamics may be picking up, which warrants continued monitoring," de Guindos said in a speech. "However, to date, inflation expectations have remained anchored." De Guindos added that the ECB would continue to raise interest rates, proceeding "with prudence", to get inflation back to target, even if this process takes an "extended" period. Reporting by Balazs Koranyi Editing by Gareth JonesOur Standards: The Thomson Reuters Trust Principles.
LJUBLJANA, Nov 10 (Reuters) - The European Central Bank will probably need to raise interest rates to a level that weakens growth to curb high inflation that is at a growing risk of taking hold in the euro zone, ECB board member Isabel Schnabel said on Thursday. With euro zone inflation running in double digits, the ECB has been raising rates at a record pace even as the euro zone economy heads for recession. read moreBut Schnabel, the leader among ECB hawks who favour higher borrowing costs, said the central bank should press ahead, likely reaching "restrictive territory", or a level of rates that curbs economic growth. "We will need to raise rates further, probably into restrictive territory." "This is currently unlikely, not least due to the robust labour market, large excess savings and the massive fiscal support."
FRANKFURT, Nov 7 (Reuters) - The European Central Bank must not stop raising interest rates until underlying inflation has clearly peaked, but it may slow the pace of hikes once rates hit a level that starts to restrict growth, France's central bank chief told the Irish Times. The ECB has increased rates by a combined 200 basis points to 1.5% in just three months, its fastest pace of hikes on record. "As long as underlying inflation has not clearly peaked, we shouldn't stop on rates," the newspaper quoted French central bank governor Francois Villeroy de Galhau as saying on Monday. Rapid rate hikes have, however, put the ECB close to the so-called neutral rate, an undefined mark seen somewhere between 1.5% and 2%, where the central bank for the 19 countries using the euro is neither stimulating nor slowing growth. Markets now expect a 50 basis point rate hike in December after back-to-back 75 basis point moves, to be followed by another 50 basis point increase in February.
ECB's top brass keep focus on fighting inflation
  + stars: | 2022-11-04 | by ( )   time to read: +2 min
FRANKFURT, Nov 4 (Reuters) - The European Central Bank's (ECB) two top officials emphasised on Friday the central bank's focus on bring down inflation in the euro area before it becomes entrenched. "We would need to take additional actions until we are more confident that inflation will return to target in a timely manner," she added. Both he and Lagarde said governments should stick to "temporary" and "targeted" support for households affected by the current inflation crisis to avoid supporting demand. Panetta, however, struck a more dovish tone by saying the ECB should avoid raising rates too fast because that could excessively hurt economic growth, home prices and financial markets. Reporting by Francesco Canepa Editing by Balazs Koranyi and Mark PotterOur Standards: The Thomson Reuters Trust Principles.
ECB can't just mirror Fed moves, Lagarde says
  + stars: | 2022-11-03 | by ( )   time to read: +2 min
FRANKFURT, Nov 3 (Reuters) - The European Central Bank must be attentive to policy decisions by the U.S. Federal Reserve, which influence global markets, but cannot just mirror its moves, ECB President Christine Lagarde said on Thursday after the Fed guided for more rate hikes. But Lagarde said the ECB, which itself raised rates by 75 basis points last week, could not simply mimic the Fed because economic conditions were different in the 19-country euro zone - a point underscored earlier by ECB board member Fabio Panetta. Lagarde conceded the ECB was "influenced by the consequences" of Fed action through financial markets and especially the euro's exchange rate, which was falling against the U.S. dollar on Thursday. "Clearly the exchange rate matters and has to be taken into account in our inflation projections," Lagarde said. He was echoed by Portuguese central bank governor Mario Centeno, who said in an interview the ECB had already completed a large part of the rate hikes it sees as needed.
ECB wants to put banks on schedule to meet climate goals
  + stars: | 2022-11-02 | by ( )   time to read: +2 min
REUTERS/Wolfgang RattayFRANKFURT, Nov 2 (Reuters) - Euro zone banks still largely fail to meet the European Central Bank's climate disclosure and management expectations, and laggards who keep failing deadlines could be forced to hold more capital, the ECB said on Wednesday. "We detected blind spots at 96% of banks in their identification of climate-related and environmental risks in terms of key sectors, regions and risk drivers," he added. In an attempt to force action, the ECB is putting banks on a schedule, and they will have until the end of 2024 to meet all supervisory expectations. By next March, lenders will have to adequately categorise climate and environmental risks and must conduct a full assessment of their impact. Then by the end of 2023, the ECB expects banks to include climate and environmental risks in their governance, strategy and risk management.
FRANKFURT, Nov 1 (Reuters) - The European Central Bank must keep raising interest rates to fight off inflation, even if the probability of a euro zone recession has increased, ECB President Christine Lagarde said in an interview published on Tuesday. "We are determined to do what is necessary to bring inflation back to our 2% target." The ECB has raised interest rates by a combined 200 basis points over the past three meetings, and markets are pricing in a string of further moves that would take the 1.5% deposit rate close to 3% in 2023. "The destination is clear, and we are not there yet," Lagarde said without specifying where rate hikes might end. "The longer inflation stays at such high levels, the greater the risk that it spreads throughout the economy," Lagarde said.
Summary Energy prices continue to drive inflationBut "core" inflation accelerates as wellSome fear interest rate hikes could make slowdown worseBRUSSELS, Oct 31 (Reuters) - Euro zone inflation surged more than expected in October, data showed on Monday, fuelling expectations that the European Central Bank will press on with big interest rate hikes despite economic growth slowing. Some economists saw that continued growth as creating space for the central bank to keep taking strong inflation-fighting steps. The growth is important because many economists believe the ECB would not want to keep raising rates during an expected euro zone recession, heralded by the growth slow-down in the July-September compared with the 0.8% quarterly and 4.3% year-on-year growth in the April-June period. The surging inflation and slowing growth are mainly the result of Russia's invasion of Ukraine and the subsequent disruption of Russian gas deliveries to Europe. That has driven up energy prices and broader inflation, triggered rate rises and lead to a slowing of economic activity and falling confidence.
Euro zone inflation soars past forecasts to new record high
  + stars: | 2022-10-31 | by ( )   time to read: +3 min
FRANKFURT, Oct 31 (Reuters) - Euro zone inflation surged past expectations yet again this month to hit a record high, pointing to further interest rate hikes from the European Central Bank as price pressures appear to be broadening. Energy prices continued to drive inflation but food and imported industrial goods all pushed prices sharply higher even as services played only a marginal role this time. But markets have started to anticipate a slowdown in rate hikes as a recession looms and gas prices have come down from record highs. Reuters GraphicsBut policymakers are likely to be concerned that underlying price growth, which filters out volatile food and fuel prices, continued to accelerate, pointing to broadening price pressures, which raises the risk that high inflation will get entrenched. But the weak euro is adding to price pressures while wage growth is also inching up, a key worry as a wage-price spiral would make inflation even more difficult to break.
[1/2] Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. But policymakers on Friday appeared to be on message that rates will keep going up. Investors now see ECB rates peaking at around 2.75%, above levels near 2.5% seen on Thursday after the ECB's rate hike and language tweaks. RECESSIONThe policymakers' reinforcement of the rate hike message comes as a recession now looks almost certain, and will likely prompt a barrage of further criticism from European leaders. But ECB chief Christine Lagarde pushed back on the criticism on Thursday, arguing that breaking inflation was the ECB's chief mission and governments could help by providing targeted support for the most vulnerable.
Recession risk looms large over euro zone, ECB policymaker says
  + stars: | 2022-10-28 | by ( )   time to read: +2 min
VILNIUS, Oct 28 (Reuters) - The likelihood of a euro zone recession is rising but the European Central Bank needs to keep raising interest rates as inflation remains high and projections may even need to be raised, Lithuanian policymaker Gediminas Simkus said on Friday. "It seems they will be revised upwards again, especially for next year," said Simkus, who sits on the rate-setting Governing Council. Simkus also suggested that growth forecasts may need to be cut to account for a recession, as the bloc struggles with sky high energy costs. "The likelihood that the euro zone enters a technical recession has grown," Simkus said. The ECB currently reinvests all cash from bonds maturing in the scheme and the expectation is that instead of outright bond sales, the ECB would wind down the debt pile by not reinvesting all funds.
But the rate decision is likely to be the easy part of Thursday's meeting. The ECB's rate decision is due out at 1315 GMT, followed by Lagarde's news conference at 1345 GMT. Having borrowed at zero or even negative rates, banks can now simply park this cash back at the ECB for a positive, risk-free return, which rises with each deposit rate hike. The ECB would also be justified on monetary policy grounds to act, as abundant liquidity is keeping interest rates too low - money market rates are still slightly below the central bank's deposit rate. The bank is likely to decide to change the bank loan terms, but the devil will be in the detail as only imperfect options are available to it.
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