Koenigswinter – The European Central Bank should raise its policy rate outside the negative territory with the first step in July, but the process should be “slower” than suggested by anyone, ECB policymaker Ignacio Visco said on Friday.
Financial markets are now expecting to see an ECB rate increase of 105 basis points by the end of the year, raising their bets as Dutch central bank chief Klaus Knott says a 50 basis-point move could be needed if inflationary pressures increase.
“I have no problem with the exit, but I think it should be slower than anyone thought,” Visco, the head of Italy’s central bank, told a news conference after a meeting of a group of seven monetary policymakers in Germany.
“It simply came to our notice then. There is nothing wrong with starting this in July, “said Visco.
With inflation holding a record high of 7.4% – almost four times the ECB’s target – all but a handful of policymakers have sued for a rate hike in July, the ECB’s first increase in more than a decade.
Joachim Nagel, president of the Bundesbank, who was present at the G7 meeting, agreed that first-rate measures could come in July, with further increases soon to come.
Several ECB policymakers have also argued for raising the minus 0.5% deposit rate in positive territory this year, which would mean at least three 25-basis point moves.
Exit from the negative rate has become controversial, however, Visco argued that the rate-setting board agreed with the idea of ”almost all of us”.
The head of the French central bank, Franোয়াois Villarre de Galhous, one of the policymakers who is openly arguing for a positive central bank rate by the end of the year, says the ECB’s biggest threat was inflation.
“The number one threat in the short term is inflation … it is our responsibility as central bank and we accept this responsibility and we are committed to controlling inflation,” Villarre said in a separate news event on the sidelines of the G7 meeting.
The ECB’s deposit rate has been in negative territory since 2014. (Reporting by Francesco Canepa and Leigh Thomas; Written by Balaj Korani; Edited by Luis Heaven and Hugh Lawson)