European Central Bank policymakers will discuss whether to raise interest rates by 25 or 50 points at their meeting on Thursday to tame record-high inflation, two sources with direct knowledge of the discussion told Reuters.
The sources, who spoke on condition of anonymity because the deliberations are private, said policymakers were also homing in on a deal to provide help for indebted countries like Italy on the bond market if they stick to European Commission rules on reforms and budget discipline.
These include the targets set by the Commission for securing money from the European Union Recovery and Resilience Facility as well as the Stability and Growth Pact, when it is reinstated next year after the pandemic break, the sources said.
An ECB spokesperson declined to comment, citing the bank’s quiet period.
The ECB had said that it would only raise interest rates gradually and most probably by 25 basis points in July, postponing a bigger move to September.
But ECB chief Christine Lagarde in a June speech said there were “clearly conditions in which gradualism would not be appropriate”.
Rate setters have discussed for weeks the conditions that countries need to fulfil to qualify for a new bond-buying scheme, aimed at capping their borrowing costs when they are deemed to be out of synch with economic reality, the sources said.
Some policymakers would have wanted to involve the European Stability Mechanism, the euro zone’s bailout fund created in the wake of the debt crisis a decade ago, but this option was now likely to be discarded, the sources said.
The ECB accelerated work on the new scheme in mid-June after a sudden flare-up in the yields and premia paid by Greece, Italy, Spain and Portugal on the bond market as investors priced in the end of the central bank’s purchases and the start of its rate-hiking cycle.