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☆ Euro zone banks could take big hit from inflation income drain, ECB says
▼ + stars: | 2022-11-15 | by ( ) www.reuters.com time to read: +2 min

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.

☆ Euro zone wages finally rising but inflation expectations muted, ECB VP says
▼ + stars: | 2022-11-14 | by ( ) www.reuters.com time to read: 1 min

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.

☆ ECB will likely need to raise rates to level that curbs growth-Schnabel
▼ + stars: | 2022-11-10 | by ( ) www.reuters.com time to read: +2 min

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."

☆ ECB must not stop rate hikes before core inflation peak, Villeroy says
▼ + stars: | 2022-11-07 | by ( ) www.reuters.com time to read: +2 min

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 ( ) www.reuters.com 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 ( ) www.reuters.com 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 ( ) www.reuters.com 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.

☆ ECB must keep raising rates even if recession risks rise, Lagarde says
▼ + stars: | 2022-11-01 | by ( Stefanno Sulaiman | Fransiska Nangoy | ) www.reuters.com time to read: +1 min

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 ( ) www.reuters.com 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.

☆ Recession risk looms large over euro zone, ECB policymaker says
▼ + stars: | 2022-10-28 | by ( ) www.reuters.com 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.

☆ ECB policymakers stick with hike plans even as recession looms
▼ + stars: | 2022-10-28 | by ( Balazs Koranyi | ) www.reuters.com time to read: +5 min

[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.

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.

☆ Euro zone credit growth rises again, despite gloomy outlook
▼ + stars: | 2022-10-26 | by ( ) www.reuters.com time to read: +1 min

[1/2] Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. REUTERS/Wolfgang RattayFRANKFURT, Oct 26 (Reuters) - Bank lending to euro zone companies accelerated further in September, extending the sector's biggest borrowing binge in over a decade, despite rising interest rates and a looming recession, European Central Bank data showed on Wednesday. Household credit growth meanwhile slowed to 4.4% from 4.5%, fresh data showed. Credit growth has been robust this year even as banks tightened access to funds, partly reflecting firms’ increased need for liquidity to cover inflated energy costs. read moreGrowth in the M3 measure of money circulating in the euro zone, meanwhile, accelerated to 6.3% from 6.1%, outpacing expectations for 6.1% in a Reuters survey.

☆ Analysis: Decade of central bank largesse haunts taxpayers as losses loom
▼ + stars: | 2022-10-25 | by ( Francesco Canepa | ) www.reuters.com time to read: +6 min

Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. The British government, which received 120 billion pounds in profits from the BoE since 2009, has already earmarked a transfer of 11 billion pounds for the central bank. It will contribute to losses of around 40 billion euros for euro zone central banks next year, according to Morgan Stanley. They have all warned of upcoming losses and the Dutch central bank openly said it risked needing a bailout, although finance minister Sigrid Kaag later cautioned this was "not yet on the table". By contrast, central banks with less cash and higher-yielding bonds in Italy, Spain and Greece were likely to fare better.

☆ Euro zone's current account deficit widens on soaring energy bill
▼ + stars: | 2022-10-20 | by ( ) www.reuters.com time to read: 1 min

FRANKFURT, Oct 20 (Reuters) - The euro zone's current account deficit widened in August as soaring energy costs pushed up the bloc's import bill, data from the European Central Bank showed on Thursday. The currency bloc of 19 countries, which ran a current account surplus for years before Russia's war in Ukraine, recorded an adjusted deficit of 26.32 billion euros in August after a 19.96 billion deficit a month earlier. In the 12 months to August, the euro zone's current account deficit equalled 0.1% of gross domestic product (GDP), down from a surplus of 2.8% in the preceding year. Register now for FREE unlimited access to Reuters.com RegisterReporting by Balazs Koranyi Editing by Gareth JonesOur Standards: The Thomson Reuters Trust Principles.

☆ Euro zone may be facing recession but rate hikes necessary, ECB's Makhlouf says
▼ + stars: | 2022-10-18 | by ( ) www.reuters.com time to read: 1 min

NICOSIA, Oct 18 (Reuters) - The euro zone economy may be facing a recession but rate hikes remain absolutely necessary because persistently high inflation is damaging the economy and stability, European Central Bank policymaker Gabriel Makhlouf said on Tuesday. "The euro area is facing a difficult combination of high inflation and low economic growth, including the possibility of a technical recession," Makhlouf, Ireland's central bank governor said in Cyprus. "History teaches us that these issues will only be exacerbated if we delay action and raising interest rates is absolutely necessary as persistent inflation is damaging to macroeconomic stability." Register now for FREE unlimited access to Reuters.com RegisterReporting by Balazs Koranyi; Editing by Jon BoyleOur Standards: The Thomson Reuters Trust Principles.

☆ ECB set to warn of risks in its non-binding opinion on Spanish tax proposal, sources say
▼ + stars: | 2022-10-18 | by ( Jesús Aguado | ) www.reuters.com time to read: +4 min

MADRID, Oct 18 (Reuters) - The European Central Bank is set to warn of the adverse impact on Spanish banks' solvency of a proposed tax on the sector and of a higher cost of credit in an upcoming non-binding opinion, two sources with direct knowledge of the matter said. The central bank's opinions describe the risks from any proposed measures on credit or financial stability. Internal calculations undertaken by those experts believe that the tax could hit the Spanish banks' capital by an average of around 0.5 percentage points. "It affects solvency and financial stability but will not ultimately put Spanish banks at risk," the first source said. Though bankers have said that legally challenging the bill was an option, a senior executive from a top Spanish bank recently told Reuters that no legal options were being explored for now.

☆ Energy subsidies merely delay high inflation, ECB's Villeroy warns
▼ + stars: | 2022-10-15 | by ( ) www.reuters.com time to read: +1 min

WASHINGTON, Oct 15 (Reuters) - Europe's energy subsidies may reduce the current rate of inflation but only at the expense of future higher readings, potentially complicating the task of monetary policy, European Central Bank (ECB) policymaker Francois Villeroy de Galhau said on Saturday. "We should not be under the illusion that price caps reduce underlying inflation," Villeroy said in Washington on Saturday, addressing a meeting of the G30, a group of private and public financial officials. Register now for FREE unlimited access to Reuters.com Register"They may only help to reduce the risk of second round effects," he added. "Price caps, if temporary, only reduce current measured inflation at the expense of future measured inflation." Instead of broader spending increases which add to already high inflation pressures, governments should focus help on those in the greatest need of help, Villeroy argued.

☆ ECB policymakers put balance sheet run-off on the table
▼ + stars: | 2022-10-15 | by ( Balazs Koranyi | ) www.reuters.com time to read: +3 min

"Once we will have reached neutral territory with our policy rate, it makes sense to consider the roll-off of asset purchases by limiting reinvestments," Knot said in a speech in Washington. Register now for FREE unlimited access to Reuters.com RegisterThe balance sheet run off, part of a broader scheme of monetary policy tightening, is needed as inflation is running at 10% and will stay above the ECB's 2% target for years to come. A presentation to policymakers earlier this month provided a possible timeline for a balance sheet run-off starting in the second quarter but there has been no firm decision by the 25-member Governing Council, sources told Reuters earlier. Others on the Governing Council have also said quantitative tightening should start soon but none have called for immediate action, indicating that policymakers are keen to be done with the bulk of rate hikes before dealing with the balance sheet. Knot also said that rate hikes should not end at the neutral rate, an undefined level, and the ECB will likely have to enter a territory that brakes growth.

☆ ECB could start shrinking balance sheet once rates hit neutral, Knot says
▼ + stars: | 2022-10-15 | by ( ) www.reuters.com time to read: +2 min

Knot did not specify an estimate for the neutral but said the rate should reach a range of plausible estimates. Rates hikes should not end at the neutral, however, and the ECB will likely have to enter a territory that brakes growth. "I am increasingly convinced that we need to do more than just removing accommodation to fulfil our price stability mandate," Knot said. "I do not expect policy rate hikes to come to an abrupt end," Knot said. "The farther we hike and the closer we get to restoring a credible prospect of inflation moving back to target, the smaller rate steps will likely become."

☆ ECB needs more rate hikes, smaller balance sheet, Nagel says
▼ + stars: | 2022-10-15 | by ( ) www.reuters.com time to read: +2 min

WASHINGTON, Oct 15 (Reuters) - The European Central Bank (ECB) needs several more rate hikes to tame inflation despite what is likely to be a deep recession in Germany, and should also look into scaling down its balance sheet, Bundesbank President Joachim Nagel said on Saturday. "Further interest rate hikes will be needed to bring the inflation rate back to 2% in the medium term – not just at the monetary policy meeting at the end of October," Nagel said in a speech in Washington. Register now for FREE unlimited access to Reuters.com Register"The ECB Governing Council must not let up too soon." Monetary policy tightening is needed as inflation is likely to stay high, and Nagel predicted Germany's rate would reach more than 7% next year. "GDP (in Germany) could decline significantly in the final quarter of 2022 and the first quarter of 2023," Nagel said.

☆ ECB may need 75 bps rates hikes in Oct, Dec before balance sheet cut, Vasle says
▼ + stars: | 2022-10-14 | by ( Balazs Koranyi | ) www.reuters.com time to read: +3 min

Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. "I think that our most recent pace for hikes is also appropriate at our next two meetings." When asked if he meant 75 basis points, Vasle, considered a hawk on the 25-member Governing Council, said "I think so." ECB policymakers have said that the first goal is to reach the "neutral" level for rates, where the bank is neither stimulating nor holding back growth. However, reivnvestments in a smaller Pandemic Emergency Purchase Programme, set to run through 2024, should continue as planned, Vasle added.

A new 100-euro banknote is presented at the ECB headquarters in Frankfurt, Germany, September 17, 2018. Register now for FREE unlimited access to Reuters.com RegisterSenior staff presented the model to policymakers at a retreat in Cyprus last week. MODELS, DOUBTSThe ECB has raised its deposit rate from -0.5% to 0.75% in less than two months, its fastest pace on record, and another large hike is slated for Oct. 27. And staff said this rate peak would be even lower if the ECB hoovered up some excess liquidity from the financial system - a reduction in its balance sheet often called quantitative tightening - the sources added. Policymakers' key objection was that staff models have fared poorly in recent years so there was little confidence in an indicator that was so far below current market pricing, the sources said.

Policymakers agreed that markets were tense now so there was no sense in testing investors with a premature reinvestment plan. Policy hawks, normally advocates of tighter policy, also appeared to be on board with this plan, the sources said, as they are prioritising rate hikes and saw the balance sheet question as a secondary issue. Some fear that if a reduction in the balance sheet started soon, that would serve as an argument for a slowdown in rate hikes. The sources added that the discussion did not impact the ECB's 1.7 trillion euro Pandemic Emergency Purchase Programme. Reinvestments in this programme are set to run through 2024 and policymakers are not keen at all to make a change.

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