ECB caught in a rate quagmire of its own making

Members of the European Central Bank’s governing council are divided on how fast and how far they should go in tightening monetary policy and raising interest rates, minutes from their April meeting published on May 19 showed.

“Some members viewed it as important to act without undue delay,” the accounts showed. But others observed that aggressive tightening might be “counterproductive as it would lower growth.” The ECB should consider raising its key interest rate by as much as 50 basis points, to zero, at its July policy-setting meeting, Dutch central bank Governor Klaas Knot said on May 17.

“Based on current knowledge, my preference would be to raise our policy rate by a quarter of a percentage point,” he said to Dutch TV programme “College Tour”. “If that is the case, bigger increases must not be excluded either.” ECB executive board member Fabio Panetta however said on May 5 in an interview with Italian newspaper La Stampa that “it would be imprudent to act without having first seen the hard numbers on GDP for the second quarter”, which will not be available when the ECB meets on July 21.FILE PHOTO: The European Central Bank logo in Frankfurt, Germany, January 23, 2020.

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