ECB Weighs Bigger Rate Hike But Seeks Safety Net For Debtor Nations
Policymakers at the European Central Bank (ECB) are considering a larger-than-anticipated 50 basis point increase in interest rates at their meeting on Thursday to curtail record-high inflation, two sources with direct knowledge of the discussion told Francesco Canepa and Balazs Koranyi of Reuters late on July 19, 2022.
Photo Insert: Thursday will mark the ECB's first rate hike in more than a decade, despite a challenging economic environment aggravated by the Ukraine conflict.
Policymakers are also likely to reveal a plan to assist indebted nations like Italy on the bond market in order to mitigate the impact of increasing borrowing costs. The agreement will demand adherence to European Commission (EC) guidelines regarding reforms and fiscal discipline, according to sources.
Thursday will mark the ECB's first rate hike in more than a decade, despite a challenging economic environment aggravated by the Ukraine conflict. Inflation is high and increasing, economic growth has stalled, and an Italian political crisis has investors on edge.
This dynamically forces the ECB to strike a balance between hiking interest rates to contain inflation and ensuring that the 19 most indebted member states of the eurozone do not experience financial difficulties as a result.
The sources, who spoke on the condition of anonymity because the meetings are secret, reported that the question of whether to raise interest rates by 25 or 50 basis points was still up in the air. Other major central banks have raised rates in larger increments, such as 75 or even 100 basis points, increasing the pressure on the ECB to increase its rate hikes.
The danger of a recession in the eurozone, especially if Russia cuts off natural gas supplies, has made some ECB governors warier of stifling growth, according to sources.