ECB expectations also turned hawkish after historic interest rate hike

The European Central Bank (ECB), which increased the main refinancing rate, marginal lending facility and deposit rate by 75 basis points yesterday, may also increase interest rates in October, according to information obtained from sources familiar with the matter. Sources who spoke to Bloomberg reported that this view was voiced by both hawkish and dovish members of the ECB Governing Council. The sources reported that the process of reducing the $5 trillion worth of bonds that the ECB has purchased in recent crises – in other words, quantitative tightening (QT) – will be discussed by policymakers at the meeting to be held in Southern Cyprus on October 5 and in other meetings that will follow. According to information obtained from sources, ECB Chief Economist Philip Lane, who has argued that interest rate hikes should be carried out at a “steady pace” in the near future, took a much more hawkish stance in his presentation to the Governing Council at yesterday’s meeting. The ECB spokesperson did not comment on the matter. Bloomberg economists David Powell, Jamie Rush and Maeva Cousin also expect the ECB to raise interest rates by 75 basis points next month. Economists predict a 50 basis point hike in December, while they predict only a 25 basis point increase in deposit rates in February.