Exclusive: ECB Insider: 50bp Rate Hike Likelier in October than Another 75bp

9 September 2022

- ECB insider: Would need very strong case to justify another 75bp
- ECB insider: 75bp not the new benchmark rate hike size

By David Barwick – FRANKFURT (Econostream) – The European Central Bank’s Governing Council is likelier at its October monetary policy meeting to hike by 50 basis points than by another 75, according to an ECB insider who spoke to Econostream.

Although the Governing Council ultimately supported a 75bp hike yesterday unanimously, this should by no means be regarded as the new benchmark rate hike size, this person insisted.

‘That’s what frontloading means – that you can’t say that 75 is our new standard move’, even temporarily, he said. ‘It’s just that this particular time we moved by 75, which doesn’t mean that next time it will also be 75.’

To the assertion that a reasonable expectation for the October hike would be 50bp or 75bp, this person responded without hesitation: ‘I would say 50.’

Precisely because the Council is data-driven - meaning that a decision in favour of 75bp would require a ‘major surprise’ - 50bp would be the more logical scenario from today’s perspective, he said.

‘This time, we really had worse inflation data’ that helped compel the less conventional choice of 75bp, he said. ‘I don’t mind 75, to tell you the truth. But we need to have a very strong case to go for another 75. We need to see a change in the data.’

Such a change next month is less likely by simple virtue of the fact that the revised staff macroeconomic forecasts released yesterday - which showed a renewed increase in medium-term HICP - will next be revised only in December, he noted, meaning that this potential justification of a larger move will be absent in October.

There is no one forcing the Council to take moves of any particular magnitude, he said. ‘But I’m happy that we did 75 this time.’