The European Central Bank could consider raising interest rates by a quarter point on Thursday, double what it did last month, only because of a worsening inflationary backdrop, people familiar with the situation said.
The move would represent a sharp departure from the guidance most board members have followed since it was set at a June 9 policy meeting, and would allow the ECB to align more closely with the global push for a massive hike.
The euro rose as much as 1.1% to $1.025 against the dollar, less than a week after falling below parity for the first time in two decades.
Irish mortgage adviser Michael Dowling said the European Central Bank’s rate hike in the summer, which would lead to a half-point rise in mortgage rates, would add €80 a month, or €960 over a year, to the cost of servicing a mortgage. Irish households.
Dowling said any 1% rise in mortgage rates would add about €2,000 over a full year to a €300,000 mortgage.
Around 460,000 variable rate home borrowers could be affected first, but all 740,000 home mortgage borrowers in the Republic will pay more over time as borrowers on short-term fixed rates return to higher borrowing costs.
With officials raising interest rates for the first time in more than a decade this week, it is unclear whether there will be enough support for a 50 basis point hike, the sources said.
Chief economist Philip Lane, a former governor of the Central Bank of Ireland, will present the official policy proposal at the meeting.
But President Christine Lagarde left room for more than 25 basis points, or a quarter-point increase, in a speech on June 28, days before data showed eurozone inflation rose more than expected to a new all-time high of 8.6% , which is more than four. times. Target 2%.
“There are clearly circumstances in which gradation would not be appropriate,” she said.
“If we see, for example, higher inflation that threatens to overturn inflation expectations, or signs of a continuing loss of economic potential that constrains resource availability, we will need to withdraw accommodation sooner to prevent the risks of a self-fulfilling spiral.” she said.
Most economists expect the European Central Bank to raise rates by 25 basis points this week, with only four of 53 in a Bloomberg survey forecasting a half-point increase.
“We are not ruling out a 50 basis point rate hike at this week’s meeting,” Matthew Ryan, Ibery’s head of market strategy, said before announcing the latest trade.
Among the ECB board members who have publicly taken a bigger step this month are the Austrian Roberts Holzmans, the Latvian Mārtiņš Kazāks and the Lithuanian Ęedimins Šimkus.
Rising inflation, the euro falling below the dollar and the impression that policymakers are ahead of the curve are just some of the reasons behind Thursday’s big gains.
Arguments to the contrary include the European Central Bank’s commitment to a quarter-point hike, market acceptance, shaky growth prospects and Italy’s political upheaval.
“It is true that they reported something else,” Martin Weider, an economist at Zuercher Kantonalbank in Zurich, said earlier this week, adding that he had been persuaded to make one of the only half-point forecasts.
“The signs are clearly pointing to a normalization of interest rates – and the ECB hasn’t even started,” the economist said.
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