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☆ ECB's Lagarde sticks to rate hikes as bond debate starts
▼ + stars: | 2022-10-12 | by ( ) www.reuters.com time to read: +2 min

WASHINGTON, Oct 12 (Reuters) - European Central Bank President Christine Lagarde on Wednesday singled out interest rate increases as the best tool to fight runaway inflation in the euro zone even as a debate about mopping up excess cash got underway. Trying to fight runaway prices, the ECB has raised its rate on bank deposits to 0.75%, promised more hikes and begun a debate about whittling down its 3.3-trillion-euro ($3.20 trillion) bond holdings - legacy of its fight against deflation in the last decade. Lagarde emphasized rate hikes as the ECB instrument of choice at present even as other policymakers began publicly debating how and when to stop reinvesting some of the proceeds from the debt the central bank had bought since 2015. Also speaking in Washington, Dutch central bank chief Klaas Knot said the ECB needed at least two more rate hikes of up to 75 basis points each before reaching the neutral level, where it neither stimulates nor curbs the economy. Lagarde acknowledged the discussion about this so-called "quantitative tightening" had started and would continue.

☆ ECB closing in on rule change to shave banking profits, sources say
▼ + stars: | 2022-10-12 | by ( Balazs Koranyi | ) www.reuters.com time to read: +4 min

All sources said that a decision could come at the Oct. 27 policy meeting because there's little benefit in waiting. The benefit is that all banks are affected the same way and the ECB would not be playing favorites. They also said that this sort of accommodation is inconsistent with interest rate policy, which is being tightened. That risks putting political pressure on central banks around the euro zone. In extreme cases, central banks could even deplete their own capital, possibly forcing governments to recapitalize lenders.

Members of the Royal Swedish Academy of Sciences Tore Ellingsen, Hans Ellegren and John Hassler announce the 2022 Nobel Prize for Economic Sciences, during a news conference at the Royal Swedish Academy of Sciences in Stockholm, Sweden October 10, 2022. The winners are Ben S. Bernanke (USA), Douglas W. Diamond (USA) and Philip H. Dybvig (USA). "Some households and some firms are already weakened," Gernot Doppelhofer, professor at the economics department of the Norwegian School of Economics (NHH) said. The economics prize is not one of the original five awards created in the 1895 will of industrialist and dynamite inventor Alfred Nobel. It was established by Sweden's central bank and first awarded in 1969, its full and formal name being the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Strengthening the case for another 75 basis point increase, German inflation jumped to 10.9% this month, far beyond expectations for a reading of 10%. "There is no easing in sight, and next year the inflation rate is only likely to fall because energy prices are unlikely to rise again as strongly as this year, partly due to government intervention," Commerzbank economist Ralph Solveen said of the German inflation figures. While few governors ventured to estimate where interest rate hikes could end, de Cos said that models suggest a significantly lower terminal rate than markets now expect. "On the basis of current information, the median terminal rate value across models is at 2.25%-2.50%," de Cos said. Rate hike talk is intensifying even as recession fears rise.

☆ ECB should focus on rate policy over balance sheet cut, Centeno says
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: 1 min

FRANKFURT, Sept 29 (Reuters) - The European Central Bank should focus on interest rate policy over balance sheet operations as its deposit rate is still far from the so-called neutral rate, the bank's intermediate goal, Portuguese central bank chief Mario Centeno told Bloomberg TV. "Right now frontloading other debates may in my opinion have a destabilising effect that we really need to avoid," Centeno said when asked if it was time to discuss quantitative tightening. "We have a path towards normalisation of monetary policy and that's the focus right now." Register now for FREE unlimited access to Reuters.com RegisterReporting by Balazs Koranyi Editing by Raissa KasolowskyOur Standards: The Thomson Reuters Trust Principles.

☆ ECB's Rehn warns against excessive energy expenditure
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +1 min

"The efforts of EU countries to identify ways to limit household energy bills are understandable but indiscriminately increasing expenditure would not be - and would not help in the fight against inflation," Rehn said in a statement. Instead, he called for tailored and temporary measures targeted at the most vulnerable to help them pay for their energy. Register now for FREE unlimited access to Reuters.com Register"The long-term debt sustainability of more than one-third of the countries in the euro area is under serious threat," he said. Rehn said Europe should combine its forces in combating energy-related inflation via energy market reforms but first and foremost by saving energy. Register now for FREE unlimited access to Reuters.com RegisterReporting by Anne Kauranen; Editing by Balazs Koranyi and Hugh LawsonOur Standards: The Thomson Reuters Trust Principles.

☆ ECB policymakers back another jumbo hike as inflation rises further
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +2 min

VILNIUS, Sept 29 (Reuters) - Four European Central Bank policymakers on Thursday backed another big interest rate hike next month as euro zone inflation looked set for another record high, but they differed on whether it was time to think about mopping up cash from the economy. The ECB has raised rates by a combined 125 basis points over its past two meetings and promised further increases as inflation rises towards 10% and longer-term expectations edge above its 2% target. Strengthening the case for another 75-basis-point increase, data on Thursday showed inflation in Germany's most populous state jumped to 10.1% in September - the most since the early 1950s. Register now for FREE unlimited access to Reuters.com RegisterGermany will publish a nationwide flash estimate for September inflation later on Thursday, with a reading for the 19-country euro zone due on Friday. "My choice would be 75 (basis points)," ECB policymaker Gediminas Simkus told Bloomberg TV on the sidelines of a conference in Vilnius.

☆ ECB policymakers see no need to aid Italy with new scheme: sources
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +3 min

But four sources close to ECB decision makers said they saw no need to activate TPI because the market reactions did not appear "disorderly" or "unwarranted" - two key conditions for activating the scheme. The spread, or risk premium, over German debt edged above 250 basis points, the level at which the ECB stepped in last summer. More specifically, countries must respect the European Union's economic prescriptions, have a sustainable public debt and not show any macroeconomic imbalances. Asked about Italy earlier this week, ECB President Christine Lagarde said the scheme would not be used to buy the bonds of countries that make "policy errors" - without singling any out. The ECB can also use proceeds from its Pandemic Emergency Purchase Programme to buy bonds from indebted countries like Italy above their designated quotas if needed.

The October move should then be followed by another step that takes the ECB to what policymakers call the neutral rate, which neither stimulates nor slows growth, ending a more than decade-long experiment with ultra-easy policy. "In my view, we are heading towards the range of the neutral rate by Christmas," said Rehn, 60, a potential Finnish presidential candidate who often tops opinion polls. While undefined, the neutral rate is seen somewhere between 1.5% and 2%, well above the ECB's 0.75% deposit rate. "For euro zone inflation, there is one driver above others and one anchor more important than others," Rehn said. While a downturn is increasingly likely to morph into a recession given sky-high energy prices and potential energy shortages, Rehn argued this was still a small price to pay.

☆ ECB may need to lift rates by 75 basis points in Oct, Kazimir says
▼ + stars: | 2022-09-28 | by ( ) www.reuters.com time to read: 1 min

Sept 28 (Reuters) - The European Central Bank may need to raise interest rates by another 75 basis points next month as inflation remains unacceptably high, Slovak central bank chief Peter Kazimir told a news conference on Wednesday. The ECB already lifted rates by a combined 125 basis points at its past two meetings, the quickest pace of tightening on record, and promised further rate hikes at least until it reaches the "neutral" level, which neither slows nor stimulates growth. Register now for FREE unlimited access to Reuters.com RegisterReporting by Rober Muller; Writing by Balazs Koranyi; Editing by Alison WilliamsOur Standards: The Thomson Reuters Trust Principles.

☆ ECB policymakers put 75 bps hike on table for October
▼ + stars: | 2022-09-28 | by ( ) www.reuters.com time to read: +3 min

FRANKFURT/HELSINKI, Sept 28 (Reuters) - The European Central Bank may need to raise interest rates by another 75 basis points at its October meeting and move again in December to a level that no longer stimulates the economy, policymakers said on Wednesday. Finnish central bank chief Olli Rehn, considered a moderate swing voter, also said that 75 basis points could be among the options. Outspoken policy hawk Robert Holzmann, Austria's central bank governor, also backed a 75 basis point move in an interview with Bloomberg TV, arguing that 100 basis points would simply be too much. ECB President Christine Lagarde said the "first destination" in the rate hiking cycle will be the "neutral" rate, which neither stimulates not slows growth. "In my view, we are heading towards the range of the neutral rate by Christmas," Rehn said.

☆ Asked about Italy, ECB's Lagarde says she won't fix 'policy errors'
▼ + stars: | 2022-09-26 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, Sept 26 (Reuters) - The European Central Bank won't use its latest emergency scheme to buy the bonds of countries that make "policy errors", its President Christine Lagarde said on Monday in response to a question about Italy's likely next government. A right-wing alliance led by Giorgia Meloni triumphed in Italy's general elections on Sunday, inheriting one of the euro zone's heaviest debt burdens at a time of rising borrowing costs and looming recession. "It's (used in) a situation where ... there are disorderly market dynamics that are not justified by fundamentals or by economic policy errors that will have been made," Lagarde said. "This limits the risk of fuelling inflationary pressures, thereby also facilitating the task of monetary policy." Lagarde also repeated the ECB's most recent message that interest rates will need to rise over the next several policy meetings even as growth slows substantially.

☆ ECB seeks to cut subsidy to banks as rate hikes leave it on hook, sources say
▼ + stars: | 2022-09-23 | by ( ) www.reuters.com time to read: +4 min

Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. To fight runaway inflation, the ECB has raised the rate it pays on the 4.6 trillion euros ($4.5 trillion) worth of banks' reserves that exceed requirements from -0.5% to 0.75% in less than two months. The ECB might also change the terms of TLTRO loans, although this would potentially damage the credibility of future programmes and invite legal challenges, the sources added. Any such move is likely to displease banks and might even land the ECB in court. Dutch bank ING saw "disrupting effects on Italian money markets" if the ECB stopped remunerating part of the money borrowed by Italian banks under TLTRO.

☆ ECB must keep raising rates despite downturn, Schnabel says
▼ + stars: | 2022-09-22 | by ( ) www.reuters.com time to read: +1 min

European Central Bank board member Isabel Schnabel attends a dinner program at Grand Teton National Park where financial leaders from around the world are gathering for the Jackson Hole Economic Symposium outside Jackson, Wyoming, U.S., August 25, 2022. REUTERS/Jim Urquhart/File PhotoFRANKFURT, Sept 22 (Reuters) - The euro zone is facing an economic downturn but inflation is still far too high, so interest rates need to keep going up, European Central Bank board member Isabel Schnabel said. "A looming downturn would have a dampening effect on inflation," Schnabel told German news website t-online in an interview. "However, the starting point of interest rates is very low, so it is clear that we need to continue raising rates." Schnabel did not hint which way she was leaning but merely said the ECB would do whatever is needed to get inflation under control.

☆ German economy to shrink all winter as gas taps are turned off, Bundesbank says
▼ + stars: | 2022-09-19 | by ( ) www.reuters.com time to read: +1 min

REUTERS/Fabrizio BenschFRANKFURT, Sept 19 (Reuters) - The German economy is contracting already and will likely get worse over the winter months as gas consumption is cut or rationed, the country's central bank said on Monday. The Bundesbank said the economy was likely to shrink even if outright rationing is avoided as companies cut or halt production. "Economic activity may pull back somewhat this quarter and shrink markedly in the autumn and winter months," the central bank said. It cautioned, however, that it did not expect the adverse scenario it published in June, which saw the economy contracting by 3.2% in 2023, to materialise. Register now for FREE unlimited access to Reuters.com RegisterReporting By Francesco Canepa; editing by Balazs KoranyiOur Standards: The Thomson Reuters Trust Principles.

☆ ECB wants banks to review capital plans given downturn, Enria says
▼ + stars: | 2022-09-19 | by ( ) www.reuters.com time to read: +1 min

Andrea Enria, chairperson of the European Banking Authority, speaks at Reuters Summit interview in London, Britain, September 25, 2017. REUTERS/Afolabi SotundeFRANKFURT, Sept 19 (Reuters) - The euro zone banking sector is robust ahead of a possible recession but the European Central Bank is still asking lenders to review capital projections given what is likely to be a difficult winter, ECB supervisor Andrea Enria said on Monday. Register now for FREE unlimited access to Reuters.com Register"So, we are asking banks to review their capital projections under severe, adverse scenarios and we will engage in a dialogue with them." "Then there is also the issue of exposures to energy derivatives clearing that we've seen as an issue in the recent times," Enria said. Register now for FREE unlimited access to Reuters.com RegisterReporting by Balazs Koranyi; Editing by Andrew Cawthorne, Kirsten DonovanOur Standards: The Thomson Reuters Trust Principles.

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