(Bloomberg) -- European Central Bank officials are already staking out their positions before next month’s decision on interest rates, laying the ground for another forceful hike as the euro-zone grapples with inflation that’s just hit double digits.
The vast majority of the ECB’s 25-member Governing Council delivered public remarks this week, with several rallying around a second straight move of 75 basis points.
Some policymakers remain wary of rushing to lift borrowing costs as the energy crisis triggered by Russia’s invasion of Ukraine brings a recession in the 19-member currency bloc ever nearer. Consumer-price data Friday, however, hammered home the need for action, revealing a record surge of 10% from a year ago in September.
President Christine Lagarde kicked off the week by reiterating before European Union lawmakers that borrowing costs will be lifted at the ECB’s next “several meetings” -- even with economic activity expected to “slow substantially.”
While she didn’t elaborate further on the monetary-policy trajectory, some of her colleagues were less reserved.
Even before Eurostat revealed the latest inflation record, Latvia’s Martins Kazaks and Lithuania’s Gediminas Simkus both told Bloomberg they’re leaning toward another three-quarter-point hike, joining their colleagues from Austria, Slovenia and Slovakia.
Estonia’s Madis Muller wants “something in the same ballpark” as the ECB’s two steps to date -- 50 and 75 basis points -- a sentiment that’s shared by Finland’s Olli Rehn. Others refrained from numerical preferences but contributed to the debate with calls for “decisive action” -- including Bundesbank President Joachim Nagel.
There was some pushback: Chief Economist Philip Lane thinks it’s much too early to decide on the magnitude of the next rate increase, going as far as to say that speculating on it is “not particularly helpful.” Portugal’s Mario Centeno cautioned against rapid moves that may need undoing later on.
Investors noted the overall tone, however, pricing in a 75 basis-point increase on Oct. 27.
Beyond that, uncertainty persists. Most officials said they’re prepared to push borrowing costs beyond the neutral rate that neither stimulates nor restricts economic activity, if inflation warrants such a move.
While the majority declined to take a stab at where the monetary-tightening cycle will peak, one did -- Pablo Hernandez de Cos. The Bank of Spain, which he heads, estimates that a so-called terminal rate of 2.25% to 2.5% would bring inflation down to the ECB’s 2% target by the end of 2024.
De Cos warned, though, that raising rates “immediately” to the terminal level isn’t advisable.
Before it comes to October’s decision, there’ll be a debate next week on how to shrink the ECB’s balance sheet when policymakers gather for a catch-up in Cyprus. Lagarde on Monday sounded wary on starting the process too quickly, though others are more keen for it to happen sooner.
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