ECB likely to hike rate by half-point in Dec, Makhlouf says

THE European Central Bank will probably lift borrowing costs by a half-point this month, according to Governing Council member Gabriel Makhlouf, slowing the pace of its increases after inflation moderated for the first time in 1 1/2 years. 

A rise of 50 basis points “is about where we’ll end up,” Makhlouf told reporters on Monday (Dec 5) in Dublin, saying that if that’s the case, other hikes will follow at subsequent meetings. He himself considers a half-point step to be “the minimum needed” to continue bringing inflation back toward the 2 per cent target from five times that at present.

“We have to be open to policy rates moving into restrictive territory for a period,” the Irish central-bank chief said. “It is premature to be talking about the end-point for policy rates amid the prevailing levels of uncertainty.”

After hikes of 75 basis points at their last two meetings, ECB officials appear to be increasingly open to a smaller move at their final gathering of the year on Dec 14-15. Makhlouf’s comments chime with those of colleagues including France’s Francois Villeroy de Galhau, who said on Sunday that he favours a 50 basis-point step.

With the Federal Reserve also poised to ease off in its battle with surging consumer prices, markets are pricing in an ECB hike of about a half point.

“If we look at futures, of what decisions are expected from the ECB, we have for December a smaller increase than those in the last two meetings,” Portuguese central bank head Mario Centeno said on Monday.

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But while “everything indicates” that the long-awaited peak for inflation in the 19-member euro area could come this quarter, he said the ECB must remain resolute.

“We have to continue transmitting to markets that the ECB will have no hesitation to fight inflation at the level that we still have today,” Centeno said. BLOOMBERG