ECB Disagrees on Hike, Reluctant to Signal Future Rate

(Bloomberg) — European Central Bank officials are divided on the size of Thursday’s interest rate hike and are seeking to avoid giving a definitive signal on their next move in December, according to people familiar with the matter. this.

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The decision to increase by 75 basis points was reached with broad consensus, although the three policymakers wanted a smaller half-point step, said the people, who declined to be identified because the discussions were private.

The Governing Council is also debating whether to recognize “substantial progress” in normalizing monetary policy, with some officials seeking to view progress toward a so-called neutral level but others -concerns that it inadvertently suggested slower restrictions, the people said.

Those words made it into the ECB’s decision statement, with the removal of a reference to increases to continue in “several meetings.” Observers took the comments to signal a possible smaller hike at the next meeting on December 15, when the ECB publishes new economic forecasts.

President Christine Lagarde did not mention the level of support for the increase at a press conference in Frankfurt, and when asked about next steps, insisted that “we have more ground to cover.” He said officials could still rise for “a few meetings” and raise rates to a tighter level if necessary.

An ECB spokesman declined to comment on the Governing Council’s deliberations.

Officials also intend to agree on a broad strategy for reducing their balance sheet at that meeting. The ECB is not currently planning to announce a start date for so-called quantitative tightening, people familiar with the matter said earlier.

Communicating the framework for how to shrink the portfolio will allow policymakers to prepare financial markets and gauge the reaction of investors before acting.

However, avoiding an immediate decision on so-called quantitative tightening as officials plan their final interest rate hike of the year would also be consistent with their desire to relegate portfolio unwinding to the background.

Earlier this month, Bloomberg reported that hawkish officials aim to start reducing the €5.1 trillion ($4.9 trillion) asset hoard in early 2023 while keeping rates as their main monetary policy tool.

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