JACKSON HOLE, Aug 29(ABC): European Central Bank policymakers made the case on Saturday for a large interest rate hike next month as inflation remains uncomfortably high and the public may be losing trust in the bank’s inflation-fighting credentials.
The ECB raised rates by 50 basis points to zero last month and a similar or even bigger move is now expected on Sept 8, partly on sky-high inflation and partly because the U.S. Federal Reserve is also moving in exceptionally large steps.
Speaking at Fed’s annual Jackson Hole Economic Symposium, ECB board member Isabel Schnabel, French Central Bank chief Francois Villeroy de Galhau and Latvian central bank Governor Martins Kazaks all argued for forceful or significant policy action.
“Both the likelihood and the cost of current high inflation becoming entrenched in expectations are uncomfortably high,” Schnabel said. “In this environment, central banks need to act forcefully.”
Markets were betting on a 50 basis point move on Sept 8 until just days ago but a host of policymakers, speaking on and off record, now argue that a 75 basis point move should also be considered.
“Frontloading rate hikes is a reasonable policy choice,” Kazaks, told Reuters. “We should be open to discussing both 50 and 75 basis points as possible moves. From the current perspective, it should at least be 50.”
Rate hikes should then continue, the policymakers argued.
