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MNI INTERVIEW:Ex ECB's Gerlach Sees Possible Rates/QT Tradeoff

(MNI) LONDON

ECB could start quantitative tightening in January in a deal for a 50bps December hike, former Central Bank of Ireland deputy says.

Hawkish European Central Bank policymakers could agree to hike interest rates by 50 basis points on Dec 15 rather than make a third consecutive 75-point increase in return for an earlier-than-anticipated start to running off bonds from the ECB’s balance sheet, former Central Bank of Ireland deputy governor Stefan Gerlach told MNI.

“I see a potential trade-off between interest rate increases and” quantitative tightening, Gerlach said in an interview. “I can imagine that there will be pressures to introduce QT already in January, in a very limited way, in exchange for 50 basis points. That could be a possible outcome. It could be, say, 90% [of current Asset Purchase Programme reinvestments] for the first few months, and then greater reductions later in the spring.”

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Hawkish European Central Bank policymakers could agree to hike interest rates by 50 basis points on Dec 15 rather than make a third consecutive 75-point increase in return for an earlier-than-anticipated start to running off bonds from the ECB’s balance sheet, former Central Bank of Ireland deputy governor Stefan Gerlach told MNI.

“I see a potential trade-off between interest rate increases and” quantitative tightening, Gerlach said in an interview. “I can imagine that there will be pressures to introduce QT already in January, in a very limited way, in exchange for 50 basis points. That could be a possible outcome. It could be, say, 90% [of current Asset Purchase Programme reinvestments] for the first few months, and then greater reductions later in the spring.”

Keep reading...Show less