In another move to cut liquidity to intercept it inflation progresses ECB. In particular, eurozone banks will return €296.3 billion to the ECB to repay loans it provided to them on concessional terms to support households and businesses in the midst of a pandemic downturn. The bank encouraged the return by again offering them favorable repayment terms. According to international media reports, the bank will closely monitor the market’s reaction to the liquidity squeeze to assess how quickly it can start selling bonds to reduce its portfolio by $3.3 trillion. Euro.

The repayment of loans during the week, in particular until November 23, is only 15% of the total loans that banks owe the ECB. Market analysts polled by Bloomberg predicted that eurozone banks are rushing to return 600 billion euros, and according to some estimates, the amount could reach 1.5 trillion. euros and possibly the repayment amount to disappoint the ECB. This comes as the bank’s management expressed concerns that the loans it has provided to European banks on concessional terms could undermine its efforts to curb inflation, given that the conditions have changed dramatically since it granted them.

Understandably, the bank’s concern about the rate of inflation, which is a nightmarish 10.6% by Eurozone standards, is intensifying. Thus, despite what has been said in recent days by ECB officials who left open the possibility of a softer interest rate hike, the bank president, Christine Lagarde, appeared yesterday to consider the need for another aggressive rate hike. In his speech in Frankfurt, the ECB president stressed that raising interest rates to levels unacceptable for economic growth may be necessary as inflation soared to heights five times the official target. Once again, he did not shy away from acknowledging that “recession risk” had increased and signaled that a slowdown was not enough to de-escalate prices.

Having already taken the most aggressive turn in its history towards restrictive monetary policy, the ECB is expected to raise euro interest rates by at least 50 basis points to 2% at its meeting next month. “We are committed to raising interest rates to a level that will bring inflation to a halt and bring it back to our medium-term target on time,” Ms Lagarde said, explaining the bank’s intentions.

The move is part of a plan to cut liquidity to curb inflation.

In the past few days, however, the ECB’s executives’ readiness for another 75 basis point hike seemed to be waning. Interpreting the position of the ECB management, market participants emphasized that at the December meeting, growth of only 50 bp is more likely. and some did not rule out a lighter movement, only 25 m / min. All this, of course, on the assumption that there are no surprises on the inflationary front, and given the growing fear of a recession that threatens the eurozone and is considered inevitable for many of its economies.

Governor of the Bank of France Villeroy de Gallo predicted since the beginning of the week that the ECB will decide to raise interest rates to the level of “normal rates”, i.e. about 2%, which implies an increase of 50 basis points. After all, it is important that while the market is dominated by the expectation that the next move will be a 50 bp rise, the well-known hawks of the bank did not try to refute the impressions, but, on the contrary, be very careful, even keep silent, be the last to stop.

Bank of Austria Governor Robert Holtzmann, a well-known proponent of aggressively tight monetary policy, has been reluctant to comment on the extent of the next hike lately. Similarly, his German counterpart, Joachim Nagel, is arguably the toughest hawk at the ECB. Their colleagues in Estonia and Latvia also talk about 50 basis points, i.е. up to 30% in the Baltic countries, which suffered from a strong rise in inflation. and for 75 m.v. respectively, as the most probable movements of the bank. However, they themselves avoided expressing their preference.