ECB EYES EARLY RATE HIKES

EUROPEAN Central Bank (ECB) policymakers are keen to end their bond purchase scheme at the earliest possible moment and raise interest rates as soon as July but certainly no later than September, nine sources familiar with ECB thinking told Reuters.

The ECB has been removing stimulus at the slowest possible pace this year but a surge in inflation is now putting pressure on policymakers to end their nearly decade-long experiment with unconventional support.

The big obstacle so far has been that longer-term forecasts still showed inflation falling back below the ECB’s 2 percent target but fresh estimates shared with policymakers at their April 14 meeting showed even 2024 inflation over target, several of the sources said.

“It was just over 2 percent so in my interpretation all the criteria to raise interest rates have now been met,” one of the sources, who asked not to be named said.

Governing Council members have long criticised the ECB for underestimating inflation, which hit 7.5 percent last month, and they consider the new projection as a step in acknowledging the reality.

“When (chief economist) Philip (Lane) presented the numbers, people actually clapped,” another source said.

An ECB spokesperson declined to comment.

No policy proposals have been tabled yet and the ECB’s next meeting is still over a month away, on June 9.

ECB president Christine Lagarde on Friday said that bond buys should end early in the third quarter and a rate rise this year is likely.

Nearly all of the sources said that they see at least two rate hikes this year, but some argued that a third was also possible, although highly dependent on how markets digest its moves.

Interest rates can only rise, however, once bond purchases conclude and all nine policymakers, said this was likely in June/July.