It’s a move likely to be seen as bringing forward the timing of an interest rate hike, which would affect those on tracker mortgages in Ireland. With growth shifting into higher gear, interest rate setters are ready to acknowledge the improvement by dropping a long-standing reference to “downside risks” in the bank’s post-meeting opening statement, the sources said. Growth has outperformed expectations all year.
But they disagree on how quickly the ECB should change its policy stance, including its guidance, with countries on the currency bloc’s periphery fearing that a sharp shift in its communication could induce self-defeating market turbulence, they added.
“After the French election the political risk is clearly down and economic indicators are by and large positive, so it’s time to acknowledge this,” said one Governing Council member who declined to be named.
Having fought off a threat of deflation with extraordinary stimulus, the debate within the ECB is shifting to the pace of normalisation, pitting doves who want incremental changes against conservatives who fear the ECB will act too late. A key debate at the June 8 meeting is likely to be whether the bank should axe all or part of its so-called easing bias including a pledge to keep rates at their current or lower levels for an extended period and to buy more assets if the outlook worsens.
Though many investors expect a decision on this, the sources said that this was far from certain. ECB chief Mario Draghi signalled caution yesterday, arguing that he was firmly convinced that an “extraordinary amount” of monetary policy support is still needed. Figures today are expected to show a dip in inflation. The ECB declined to comment. (Reuters)