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[1/2] The European Central Bank (ECB) building is seen from a cafe amid Christmas decorations, before the monthly news conference following the ECB's monetary policy meeting in Frankfurt, Germany December 15, 2022. Formed in October, Meloni's government is also holding out on ratifying the euro zone's bailout fund. INFLATION TARGETECB policymakers from across the euro zone defended the bank's decision-making on Friday. Estonian governor Madis Mueller said rates would probably need to rise more than markets had expected so far, while Finnish central bank chief Olli Rehn said 50 bps hikes were likely at each of its next two meetings. Inflation in Germany, the euro zone’s biggest economy, is likely to be higher than earlier thought while economic growth will be weaker with a recession next year now certain, the Bundesbank said on Friday.

After being wrong-footed by sudden price rises, the ECB has been raising rates at an unprecedented pace. Inflation has soared since economies reopened after the COVID-19 pandemic, driven by supply bottlenecks and then surging energy costs following Russia's invasion of Ukraine. Justifying Lagarde's pledge for more hikes, the ECB's new projections on Thursday showed inflation above the ECB's 2% target through 2025. [1/2] Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. The ECB also said it currently expected any recession to be "relatively short-lived and shallow" and Lagarde noted that euro unemployment levels were at "rock-bottom".

[1/2] Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. After being wrong-footed by sudden price rises, the ECB has been raising rates at an unprecedented pace. Inflation has soared since economies reopened after the COVID-19 pandemic, driven by supply bottlenecks and then surging energy costs following Russia's invasion of Ukraine. "We judge that interest rates will still have to rise significantly and at a steady pace," Lagarde told a news conference following its rate announcement. Money markets immediately moved to price in a peak deposit rate of just over 3% by July, compared to 2.75% before the meeting.

☆ ECB's Lagarde offers back-to-back rate hikes to woo dissenters
▼ + stars: | 2022-12-15 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, Dec 15 (Reuters) - European Central Bank President Christine Lagarde offered fellow policymakers back-to-back interest rate hikes worth 50 basis points each to secure a majority for Thursday's policy decision, four sources told Reuters. The stalemate ended when Lagarde offered to signal more 50-basis-point rises and a hawkish message on inflation during her press conference, convincing enough policymakers to back the proposal. The compromise helped her secure a majority for the decision although 8-10 policymakers out of 25 remained sceptical - an unusually high proportion. At a press conference after the decision, Lagarde said that, based on current data, she anticipated another 50 basis-point rise at the ECB's next meeting on Feb 2 "and possibly at the one after that, and possibly thereafter". This clashed with the ECB's promise to take decisions "meeting-by-meeting" and depending on the data.

The new projections will put inflation comfortably above 2% in 2024 and just above it in 2025, said the source, who spoke on condition of anonymity because the forecasts are not yet public. Some ECB policymakers, particularly among "hawks" who favour higher rates, have recently voiced scepticism about its forecasts and called for a greater focus on current readings. Economists polled by Reuters foresaw inflation at 6.0% in 2023, 2.3% in 2024 and 1.9% in 2025. The ECB is due to sketch out its QT plan on Thursday. ($1 = 0.9408 euros)Reporting By Francesco Canepa; Editing by Catherine EvansOur Standards: The Thomson Reuters Trust Principles.

[1/2] Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. Economists polled by Reuters expected the ECB to raise the rate it pays on bank deposits to 2% on Thursday before pushing it to 2.5% by March and 2.75% by June. The ECB was also due to lay out plans to stop replacing maturing bonds in its 5 trillion-euro portfolio, reversing years of debt purchases that have turned the central bank into the biggest creditor of many euro zone governments. The ECB will announce its policy decisions at 1315 GMT, followed by a news conference of President Christine Lagarde at 1345 GMT. "The counterpart of slower rate hikes will be hawkish guidance on the terminal rate ... accompanied by earlier or faster 'passive' QT."

☆ ECB to raise scrutiny of banks' credit risk, funding in 2023 as recession looms
▼ + stars: | 2022-12-12 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, Dec 12 (Reuters) - The European Central Bank will increase scrutiny over how banks manage credit risk and diversify funding, it said on Monday while outlining its 2023 priorities as the euro zone heads into a likely recession and faces soaring borrowing costs. A recent supervisory review also confirmed shortcomings in banks' risk controls, particularly in monitoring loans, classifying distressed borrowers and provisioning, the ECB said. "This renders banks vulnerable to a sharp correction in some property markets, especially the residential real estate segment, given the price dynamics observed in recent years," the ECB said. The ECB will conduct more targeted reviews at lenders in order to encourage "fair and timely" recognition of expected credit losses via higher provisions. This return may be more complicated as costs rise and investors' risk appetite declines, likely cutting into the profitability of the banks and challenging their ability to maintain liquidity and funding ratios, the ECB said.

☆ EU's gas price cap scheme could backfire, raise volatility -ECB
▼ + stars: | 2022-12-08 | by ( ) www.reuters.com time to read: +1 min

FRANKFURT, Dec 8 (Reuters) - Proposed European Union rules aimed at tempering natural gas price spikes may actually jeopardize financial stability and need to be redesigned, the European Central Bank said on Thursday in a formal opinion. The EU proposed a "market correction mechanism" last month aimed at tempering natural gas prices and market volatility after a spike in energy costs pushed inflation to record highs and raised financial market stress in energy derivatives trading. The ECB, a guardian of the bloc's financial stability, acknowledged that the goal was to moderate extreme price levels and volatility, but warned that the rules could achieve the exact opposite. "The ECB considers that the current design of the proposed market correction mechanism may, in some circumstances, jeopardise financial stability in the euro area," the ECB said an opinion signed by President Christine Lagarde. Instead, the EU should merely have the "possibility" to seek the ECB's advice, the ECB added.

☆ ECB survey shows rising inflation expectations for year ahead
▼ + stars: | 2022-12-07 | by ( ) www.reuters.com time to read: +1 min

FRANKFURT, Dec 7 (Reuters) - Euro zone consumer expectations for inflation in the year ahead rose in October but predictions for three years out held steady at a rate still well above the European Central Bank's 2% target, the ECB said in a monthly survey on Wednesday. Inflation soared this year on sky high energy and food prices, and the ECB has been raising rates at a record pace to temper at least longer-term expectations. Median inflation expectations over the next 12 months rose to 5.4% in October from 5.1% in September, while expectations for inflation three years ahead were unchanged at 3.0%, the ECB said based on a survey of about 14,000 people in six of the euro zone's biggest countries. The increase in the inflation outlook even came as consumers became more pessimistic about growth and employment, the ECB said. Economic growth expectations for the next 12 months declined to -2.6% from -2.4% in September while unemployment is seen rising and income growth is expected to trail inflation.

EARLY WARNING SIGNSAfter years of tame inflation, Fed officials and other central bankers say they have faced a chain of disruptive events beyond their control ranging from the COVID-19 pandemic to the Ukraine war. The central bank has made conservative estimates on inflation despite Russia cutting gas supplies to Europe in response to Western sanctions over its invasion of Ukraine. Even as some economists say an inflation peak could now be in sight, central bankers remain far from taming inflation. The concern among some central bankers is that politicians will respond by raising public spending and so aggravate the inflation pressure that their rate-hike cure is intended to heal. If that were to happen, central bankers “would have to reverse course to prevent the debt market from becoming more disorderly," Goodhart told Reuters.

☆ ECB seeks urgent regulation after multiple crypto bubbles burst
▼ + stars: | 2022-12-07 | by ( ) www.reuters.com time to read: +2 min

Crypto investors suffered a series of blows this year from the collapse of the FTX exchange, to the crash of stablecoin TerraUSD and the decline of Bitcoin. It is like froth: multiple bubbles are bursting one after another," Panetta said in a speech in London. Unbacked crypto assets are a form of financial gambling without any socially or economically useful function, so the task is to thwart criminal activity, protect unassuming investors and save a financial system that may become increasingly intertwined with crypto assets, Panetta said. The links between the crypto market and the financial system could strengthen, especially if major tech companies enter the sector, meaning regulation is urgently required, Panetta said. Regulatory efforts should be directed primarily at preventing the use of crypto-assets to circumvent financial regulation and in shielding the mainstream financial system from crypto risks, Panetta said.

☆ Analysis: Europe's inflation problem will linger for years to come
▼ + stars: | 2022-12-06 | by ( Balazs Koranyi | ) www.reuters.com time to read: +5 min

Government stimulus measures are working against the ECB's policy tightening, and too much of the energy price rise has seeped into the broader economy through second-round effects, fuelling underlying price growth. "The core inflation rate is unlikely to peak until mid-2023 and will only fall slowly thereafter," Commerzbank economist Christoph Weil said. "Against this backdrop, the ECB's goal of pushing the inflation rate back to just under 2% on a sustainable basis seems a long way off." The ECB's new projections, due out next week, are set to show inflation above target through 2024 and only falling to 2% in 2025. But it is not evident that after a few years of above-trend growth, wage-setting will fall back in line with the ECB's target.

☆ ECB needs more rate hikes but inflation close to peak, chief economist says
▼ + stars: | 2022-12-06 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, Dec 6 (Reuters) - The European Central Bank will have to raise interest rates several more times to tame price pressures, even if headline inflation is now close to its peak, ECB chief economist Philip Lane told the Milano Finanza. "We do expect that more rate increases will be necessary, but a lot has been done already," the paper quoted Lane as saying on Tuesday. "I would be reasonably confident in saying that it is likely we are close to peak inflation." Lane did not explicitly endorse a 50 bps move over a bigger increase but repeated his case for a slowdown. "Given the significant increase in (natural gas) prices, I don’t rule out some extra inflation early next year," Lane said.

☆ Euro zone inflation drops, bolstering hopes for smaller ECB hike
▼ + stars: | 2022-11-30 | by ( ) www.reuters.com time to read: +3 min

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.

☆ ECB at risk of not doing enough to fight inflation, Knot says
▼ + stars: | 2022-11-28 | by ( ) www.reuters.com 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."

☆ Euro zone credit growth remains brisk despite gloomy outlook
▼ + stars: | 2022-11-28 | by ( ) www.reuters.com 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's Lane plays down wage, core inflation fears
▼ + stars: | 2022-11-25 | by ( ) www.reuters.com 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.

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.

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 ( ) www.reuters.com 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.

☆ German financial system under strain but property correction not seen: Bundesbank
▼ + stars: | 2022-11-24 | by ( Cynthia Kim | Jihoon Lee | ) www.reuters.com time to read: +2 min

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 ( ) www.reuters.com 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.

☆ ECB must raise rates decisively; let bonds expire from start of 2023, Nagel says
▼ + stars: | 2022-11-18 | by ( ) www.reuters.com time to read: +2 min

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 ( ) www.reuters.com 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.

☆ ECB must keep inflation fight as top priority, de Guindos says
▼ + stars: | 2022-11-16 | by ( ) www.reuters.com time to read: 1 min

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.

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