ECB president Christine Lagarde. Photo: Bloomberg
The European Central Bank (ECB) kept key interest rates unchanged, at 2pc,on Thursday, as expected, but bets of rate hikes are increasing.
ECB policy makers held rates unchaged for a sixth meeting in a row even as energy prices spiked in Europe, pointing towards increased inflationary pressures.
The Bank of International Settlements (BIS) had warned central bankers against making knee jerk reaction to the impact of the war in Iran on inflation and growth.
Even so, investors have doubled down on their bets that the ECB will hike rates this year, with expectations of at least two increases.
That’s set to intensify after oil prices jumped to as high as $119 a barrel on Thursday as Iran attacked energy facilities across the Middle East following Israel’s strike on its South Pars gas field, in a major escalation of the war.
The Bank of England on Thursday voted unanimously to keep rates on hold and some members of its key committee raised the prospect of raising rates.
Traders now bet the BoE will raise rates twice this year and see a chance of a third hike by year-end. They had been pricing in less than a full chance of two hikes before the decision. Highlighting the turnaround in markets, they had expected a rate cut at this meeting before the war.
Traders’ ECB rate-hike bets have also jumped and they now fully price in two rate hikes and more than a 50pc chance of a third move by December. That’s a stark turnaround from before the war, when the risk was a cut this year.
Downbeat comments from the US Federal Reserve on Wednesday, prompting traders to all but fold on their bets on a rate cut this year.
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