Conservative “hawks”, who hold a comfortable majority in the Governing Council, are leaning towards a bigger increase.
Many hawks could live with a smaller move given the right guidance but their dovish colleagues are likely to voice loud dissent if the hike is bigger, leaving the ECB once more speaking with many voices, seen as a weakness for years. Supporting a possible ECB downshift, the U.S. Federal Reserve lifted rates by 25 basis points on Wednesday and signalled it may pause further increases.
If squeezed hard, this credit downturn could morph into a full-blown credit crunch, weighing on growth which is barely in positive territory to begin with. Hawks argue that underlying price growth remains far too high and suggests that inflation could level off above the ECB's target unless the bank acts more aggressively.
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