Momentum is building for the European Central Bank to raise interest rates in July to fight soaring inflation, after dovish policymakers indicated they are ready to accept an end to almost eight years of negative borrowing costs.and executive board member Fabio Panetta have signalled they are now more open to raising rates in the coming months, following calls from the governing council’s hawks to make the first rise in more than a decade sooner rather than later.
The so-called “spread” between the two bond yields is a closely watched barometer of investor concerns about political and economic risks in the euro area. “Once we do start moving . . . then the whole conversation will be: ‘OK, how much are you going to do and how quickly’,” he said, adding that “normalisation” would mean rates rising above zero, providing inflation remained on track to hit the central bank’s 2 per cent target.The comments mark a further shift by Mr Lane, who in February was still predicting most inflation would “fade away” within 12 to 18 months, playing down the urgency to shift policy.
He added: “Under current circumstances, negative rates and net asset purchases may no longer be necessary.” Banque de France governor François Villeroy de Galhau said in a speech on Friday that he “wouldn’t preclude” a rate rise in the next few governing council meetings, adding: “Barring unforeseen new shocks, I would think it reasonable [for policy rates] to have entered positive territory by the end of this year.”Mr Villeroy said the ECB needed to “carefully watch exchange rate developments” after the euro fell to a five-year low of $1.
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