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ECB headquarters in Frankfurt am Main: "Significant" rate hike expected
Photo: Schöning / IMAGO
On the money market, speculation about a very large interest rate hike has taken on unusual proportions following the latest statements by ECB currency watchdogs at a central bank symposium at the beginning of the week.
Prices on Monday showed that traders have now factored in 0.67 percentage points of interest rate hikes for the European Central Bank's (ECB) interest rate meeting on Sept. 8.
This means that a 0.50 percentage point hike is seen by investors as a foregone conclusion and the likelihood of an even bigger 0.75 percentage point hike is estimated at about 67 percent.
Before the central bankers' appearances at the weekend, the probability of such an even stronger interest rate hike was only estimated at 24 percent on the money market on Friday.
On Saturday, leading central bankers met at a monetary policy symposium organized by the US Federal Reserve in Jackson Hole.
There, both ECB Director Isabel Schnabel and the heads of the central banks of France and Latvia, Francois Villeroy de Galhau and Martins Kazaks, spoke out in favor of powerful or significant interest rate hikes in order to combat rampant inflation.
"We should be open to discussing both 50 and 75 basis points as possible moves," Kazaks, for example, noted.
According to ECB Director Schnabel, the central bank must signal "strong determination" to quickly bring inflation to the target mark.
France's head of the central bank spoke out in favor of a "significant" rate hike in September.
Inflation in the euro zone climbed to a new record of 8.9 percent in July.
This means that inflation is now more than four times as high as the ECB's target, which is aiming for two percent as the optimum value for the economy.
An end to the surge in inflation is also not in sight.
In addition, the danger has recently increased that long-term inflation expectations could deviate from the ECB's target.
mike/Reuters
