MNI SOURCES: ECB Clings To 50Bp Hike Plan Amid Market Turmoil

The European Central Bank hopes to push ahead with its plans to hike by 50 basis points in line with its guidance on Thursday despite the collapse of U.S. bank SVB and sliding market rate expectations, eurosystem sources told MNI, though they acknowledged that a more cautious outlook will be required for the future rate path.

“There is still time until Thursday. In general it’s always better to stick with what you said if you can,” one official at a national central bank said.

Only one official told MNI he thought it was possible the ECB would step down to a 25-bp hike on Thursday, though all acknowledged that SVB’s collapse raised questions about the rates path for future meetings.

OIS futures implied a rise in the deposit rate from its current 2.5% to 2.731% as of Monday afternoon, down from 2.89% a week earlier. Peak rate expectations slid from almost 4% in October last week to around 3.2%.

“Regarding Thursday, it doesn't change a lot but we could see a significant difference in the guidance,” one source said. Another said there did not appear to be any reason to back down from the 50-bp guidance yet, adding though that “I'm sure a fuller docket will be presented to us when we gather.”

There were currently no plans for additional meetings ahead of Thursday’s Governing Council, the second official said.

CREDIBILITY ON LINE

Another official agreed.

“If ever something is changed it is not the 50 basis points, for now,” the official said, though the same might not be true for other policy meetings going forward. “Depending on what the analysis will show, if there is a clear link between rates increases and issues in banks’ balance sheets that could happen also in Europe, then perhaps they will say, ‘Be more careful.’ But that doesn't mean that they will say, ‘Oh, let's stop,’ If inflation is still too high.”

One official, though, thought the ECB could slow down, though he acknowledged that only going ahead with a 25-basis-point increase would be negative for its credibility.

“I guess they will pick up the 25, and say …will wait and see,” the official said.

But other Eurosystem officials were in the 50-camp.

“It's a specialised bank. It’s not that big,” said one. “A Central Bank isn't here to protect bets by banks,” one said.

A former senior official pointed out that hiking by less than the 50 basis points guided could point to concerns about the eurozone financial system

“I guess they will go for 50 and be very careful about communication on future rate guidance,” the former official said.

An ECB spokesperson had no comment on whether the ECB would depart from its guidance.