The European Central Bank (ECB) will follow a step-by-step approach in raising borrowing costs, according to Governing Council member Ignazio Visco inflation.
We will see depending on data how to go on, but this does not mean that we are not going to proceed in a gradual way,” the Italian central bank governor said in an interview with Bloomberg Television.
He added that “there is no way now to say” whether the ECB’s next step should be a quarter-point or half-point increase.
The ECB is rushing to tame record eurozone inflation that’s already more than four times the 2pc target, despite not having peaked. Policy makers kicked off with their first hike in more than a decade last week, ending eight years of sub-zero borrowing costs in a stronger-than-expected half-point step.
Earlier, Mr Visco’s Governing Council colleague Martins Kazaks, who’s considered one of the ECB’s most-hawkish officials, said in a separate interview that larger increases in rates may not be over, advocating that September’s hike “also needs to be quite significant”.
At the same time, Mr Visco noted that investors hadn’t interpreted last week’s decision as a guide for future action. Traders are currently pricing in just under 50 basis points of tightening at the ECB’s next meeting in September.
“Markets have understood very well, there is no particular reaction,” he said. “It is no time now to ask for higher interest rates than what we had up to now foreseen.”
Mr Visco also said that the ECB’s new tool to fight disorderly divergences in borrowing costs in the euro area – known as the Transmission Protection Instrument – is not designed “to protect a single country” such as his native Italy. At the same time, he spoke out against current valuations of Italian bonds relative to German counterparts.
“The current spread with respect to German bunds is somehow much higher than what would be justified by the macroeconomic fundamentals of the country,” Mr Visco said. “But this is still something that has to do with the uncertainty the market sees in terms of policies.”
