© Stocksak. FILE PHOTO : A view of signage outside European Central Bank (ECB), Frankfurt. Germany, October 27, 2022. REUTERS/Wolfgang Rattay
Francesco Canepa and Balazs Koranyi by Frank Siebelt
FRANKFURT (Stocksak). Sources tell Stocksak that some European Central Bank policymakers resisted a change to the ECB’s official message regarding interest rates. The bank removed a reference “several” further rises in the next months.
The European Central Bank raised interest rate again on Thursday, saying it expects to increase them further but cautioning that “substantial progress” had been made in its efforts to stop an historic rise in inflation.
It also dropped the September statement’s reference to rates increasing “over the next few meetings”. It was understood by traders to indicate that the string of large rate increases that began in July was coming to an end.
Some policy hawks who favor higher interest rates said that the change in guidance was not a major topic of discussion at the meeting. Four sources, who requested not to be identified, said they barely noticed it in ECB’s official statements.
However, doves who defend lower rates claimed that this change was a victory. They said it paved way for the ECB’s tightening cycles to be ended as soon as December or March at the latest.
Both sides also had different views on economic outlook. Doves emphasized the recent fall of commodity prices, and particularly the clear signs that there is a recession within the euro zone.
Hawks however stated that inflation was not slowing down and was likely to be fueled by wage growth, and the weak euro.
All sources were shocked by the market reaction that saw bank shares and bonds rally. This was also influenced partly by the ECB’s decision not to shrink its pile of bonds, and by better than expected terms on its multiyear loans. [GVD/EUR] ()
A spokesperson for ECB declined comment. Christine Lagarde, President of the ECB, stated that it might take several meetings before rates peak.
Marco Valli, UniCredit economist, noted the change in the language and suggested that it could signal more caution from the ECB.
Valli stated that “despite the jumbo hike communication turned more cautious” and pointed out several other small changes that highlight the dimming economic outlook.