May 11, 2022 03:05AM ET
By: AnalysisWatch
The European Central Bank is expected to increase interest rates from their record minimum in July, but according to ECB policymaker Madis Müller, it could already set its rate assumptions for the coming months at its meeting on 9 June.
With inflation in the eurozone hitting a record 7.5%, almost four times the ECB's target, pressure is mounting on the bank to curb stimulus measures, and some policymakers are pushing for faster "normalisation", including an end to bond purchases and interest rate hikes.
The first step must be an end to bond purchases in early July, as the bank's guidelines envisage, but Müller, who is also governor of Estonia's central bank, said it is possible to accelerate the move.
While a June rate hike would violate the bank's pledge to end bond acquisitions first, the ECB could send a clear signal of an upcoming rate hike as early as June 9, which would be the first in more than a decade.
ECB Executive Board member Isabel Schnabel and Bundesbank chief Joachim Nagel, influential voices on the Governing Council, have expressed support for a July rate hike, as have a number of other policymakers.
The first hike should then be followed by several more this year and the deposit rate, which is currently at minus 0.5%, could return to positive territory by the end of the year, Müller added.
Markets currently expect a 90 basis point rate hike by the end of the year, or three to four rate hikes of 25 basis points each.
Müller said he was not worried about the widening spread between core and periphery eurozone yields as this is a natural and expected market reaction.
However, the bank should avoid "unjustified" spread widening, even if it does not prescribe new instruments against market turbulence.