(Bloomberg) -- Some European Central Bank policy makers are uneasy that investors aren’t betting on an interest-rate hike until December 2019, according to people familiar with the matter.
A move in September or October next year is on the cards, the people said, asking not to be named because the discussions are confidential, even though any decision on rates will depend on the economic outlook at the time.
Investors in the money markets are fully pricing in a 10-basis-point hike to the deposit rate only in December 2019. But they lifted the chance of a September move to 80 percent from less than 70 percent after the Bloomberg story.
While the first rate move is still a year or more away, its timing matters because it will set the tone for the ECB’s exit from years of monetary stimulus. The September and October Governing Council meetings are also President Mario Draghi’s last opportunities to cap his tenure with an increase before his term runs out on October 31.
For policy makers looking ahead, some recent numbers may give hope to their view that the euro-area weakness at the start of the year will prove temporary. German factory orders surged in May as they rose for the first time this year, and a measure of private-sector activity in the euro zone increased in June.
The ECB announced last month that it will end net bond purchases this year, but also that interest rates will stay unchanged until “at least through the summer of 2019.” The wording was generally interpreted as leaving open the possibility of increasing borrowing costs as early as September.
But Governing Council member Vitas Vasiliauskas said the guidance should be interpreted as “until the end of September,” highlighting the ambiguity of the language.
Since the decision, dovish rhetoric by policy makers including Draghi has set the market tone. Economists at ABN Amro pushed back their call to December from September after the last ECB meeting.
While the ECB has only just announced the wind-down of bond purchases, the interest-rate issue looms large. Peter Praet, the central bank’s chief economist, said Tuesday that the new guidance on rates “underlines their pivotal role” as the main tool in the future. Also, the ECB adjusted the French, German and Spanish translations of the rate pledge made in the June policy statement.
At BNP Paribas, economists said those changes support their view that a hike in September is possible, and such a move remains their baseline.
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