De Europese Centrale Bank

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ECB pressures Austria's Raiffeisen bank to quit Russia

VIENNA (March 24): The European Central Bank is pressing Austria's Raiffeisen Bank International to unwind its highly profitable business in Russia, five people with knowledge of the matter told Reuters.

The pressure comes after a top US sanctions official raised concerns about Raiffeisen's business in Russia on a visit to Vienna last month, said another person familiar with the matter, asking not to be named due to its sensitivity.

The push from Washington and the ECB is upping the stakes for Austria and its second-biggest bank, which plays a key role in the Russian economy but also an increasingly contested one as Moscow's year-long war in Ukraine drags on. Many Western companies, including French bank Societe Generale, have already left Russia.

While the ECB is not asking Raiffeisen to leave the country immediately, it wants a plan of action for unwinding the business, two of the people said. One person said such a plan could include the sale or closure of its Russian bank.

"We have been asking banks to keep closely monitoring the business in Russia, and ideally, reduce it and wind it down as much as possible," a spokesperson for the ECB said, adding it had been doing the same with all institutions concerned since Moscow launched its invasion of Ukraine.

Raiffeisen, however, does not intend to present such a plan yet, the people said, and some Austrian government officials see the moves as unwarranted foreign meddling.

A Raiffeisen spokesperson said that it was examining options for its Russia business "including a carefully managed exit" and that it was "expediting" its assessment, adding that it had also reduced lending in the country.

The Austrian lender is now the most important Western bank in Russia, offering a payments lifeline and accounting for roughly one quarter of euro transfers to the country, although other banks, such as Italy's UniCredit, are still present.

ECB officials are reluctant to pressure Raiffeisen into an immediate sale, fearing the financial hit it could trigger, one person said, after a week of global banking turmoil.

A spokesperson for Austria's finance ministry said that while there could be no return to the status quo in relations with Russia, "most" international companies, including banks remained there.

"There is substantial trade going on between Russia and the rest of the world in commodities like grain, fertilisers, oil, gas, nickel and other metals, which...require payments," said the spokesperson.

High stakes

In January, the US sanctions authority launched an inquiry into Raiffeisen over its business related to Russia.

Two people with direct knowledge of the matter told Reuters that the probe concerned potential breaches of Western sanctions. Raiffeisen said the inquiry was of a general nature.

The inquiry, which has strained relations between Vienna and Washington, could prove perilous for Austria, which had modelled itself as a bridge between east and west, turning Vienna into a magnet for Russian money.

James O'Brien, a senior sanctions official with the US Department of State, spelt out American concerns over Raiffeisen and its business with Russia during discussions in Vienna in February, one of the people said.

"Ambassador O'Brien and Austrians discussed our close cooperation on sanctions in response to Russia's illegal further invasion of Ukraine," a State Department spokesperson said when asked about the visit.

The Raiffeisen spokesperson said that the bank was in the "early stages" of collecting information to respond to the inquiry letter from the US Treasury Department's Office of Foreign Assets Control (Ofac).

During Austrian President Alexander Van der Bellen's visit to Kyiv last month, Ukrainian President Volodymyr Zelenskiy criticised Austrian businesses still operating in Russia, singling out Raiffeisen, for supporting Moscow.

The bank has also been sharply criticised by investors after participating in a Russian scheme to grant loan payment holidays to troops fighting in Ukraine.

Although the stakes are high, some Austrian officials hope they can hold out long enough for a negotiated resolution to the war, allowing for a resumption of normal business with Russia, three of the people familiar with the matter said.

Austria's foreign minister Alexander Schallenberg has said that while it is "legitimate" for US authorities to approach Raiffeisen, Austria had primary responsibility for enforcing sanctions.

US authorities can go as far as preventing a bank from processing dollar transactions, a step that would deal a serious blow to Raiffeisen and that euro zone regulators fear could destabilise the bank. Latvia's ABLV Bank quickly unravelled after being placed under US sanctions in 2018 due to concerns about illicit activity connected in large part to Russia. Some Austrian lawmakers are also critical of the government's stance.

"Supervisory authorities must examine the risks from Raiffeisen's activity and that from day one of the war," Stephanie Krisper, a lawmaker from the liberal Neos opposition party told Reuters last week.

"For many years, connections to Moscow permeated our political system — now, the economic and political dependence on Russia has finally become visible."

https://www.theedgemarkets.com/node/660605

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ECB's Enria says Deutsche Bank's selloff is a concern

FRANKFURT (Reuters) -Recent volatility in Deutsche Bank shares was concerning as it showed investors were on edge and could be spooked by moves in the small market for credit default swaps (CDS), European Central Bank supervisor Andrea Enria said on Tuesday.

The German bank's shares tumbled last Friday as the cost of insuring its debt against the risk of default jumped to a more than four-year high, intensifying worries about the health of Europe's financial sector.

Enria said the CDS market is relatively small and illiquid, but that a selloff there could have broader ramifications for the much larger share market. He called for CDS, a form of insurance for bondholders, to be centrally cleared.

"What concerned me really was the amount of nervousness, disquiet that I perceived in the market and among investors," Enria told a conference in Frankfurt.

"There are markets like the single-name CDS market which are very opaque, very shallow and very illiquid, and with a few million (euros) the fear spreads to the trillion-euro-assets banks and contaminates stock prices and also deposit outflows."

Prices for Deutsche Bank's credit default swaps, have eased since Friday but remain far above levels preceding the collapse of Silicon Valley Bank and the sale of Credit Suisse, the catalysts for the recent turmoil across the banking sector.

Enria argued that central clearing for credit default swaps would improve transparency, reducing the risk of volatility.

"Having these type of markets centrally cleared rather than having OTC, opaque transactions ... would already be a big progress," he said.

(Reporting By Francesco Canepa; editing by Balazs Koranyi and Catherine Evans)

https://www.marketscreener.com/news/lat ... ountview=0

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ECB’s ‘strong consensus’ to hike leaves door open to half-point

(April 15): Within a broad agreement at the European Central Bank (ECB) on the need to raise interest rates further are enduring preferences among some officials for another big hike.

Remarks in the run-up to this week’s International Monetary Fund (IMF) Spring Meetings had focused increasingly on the most forceful bout of monetary tightening in ECB history nearing its conclusion — a process likely hastened by bank failures in the US and Switzerland.

But while policymakers speaking in Washington acknowledged the threat to credit and economic expansion from the recent financial-sector turbulence, there was also optimism that the eurozone may escape relatively unscathed.

That would allow the ECB’s full attention to shift back to inflation, particularly underlying price pressures that are almost three times the 2% goal and gathering pace.

Belgian central bank chief Pierre Wunsch described a “strong consensus” that borrowing costs must be lifted further, with the choice in next month’s meeting probably being between a 25 or a 50 basis-point step.

Another “bad reading” for core inflation, which omits energy and food costs and is at an all-time high, could tilt the decision towards the larger increment, he said.

There was indeed widespread backing for the view that the ECB’s deposit rate, currently at 3% following 350 basis points of hikes since last summer, must rise more.

Bundesbank president Joachim Nagel stressed that “there’s still a way to go”, while Lithuania’s Gediminas Simkus said the ECB “is not done”.

While they insisted it was too soon to discuss the size of the next move, others were more forthright: Austria’s Robert Holzmann — probably the most-hawkish of the Governing Council’s 26 rate-setters — said a half-point increase “could be in the ballpark” for May, citing the persistence of core inflation.

Europe emerging from the banking mess without major damage would support such an outcome — something some officials consider possible, even if the IMF is gloomier.

“It’s difficult to disentangle the impact of tighter monetary policy from concerns about the banking sector,” Slovenia’s Bostjan Vasle said. “But the impact of the Credit Suisse situation on bank lending in the euro area is probably marginal.”

His Estonian counterpart, Madis Muller, was similarly sanguine.

“There’s no reason for us to assume at this point that the banking turmoil in the US and Switzerland is changing the outlook for the euro area,” he said. “We have to be vigilant, but at this point there’s no reason to change our monetary-policy path.”

Bets by money-market investors, who pared wagers on where the deposit rate will peak as the banking tensions unfolded, remain closer to a quarter-point hike on May 4, though they’ve ticked up in recent days.

Mario Centeno, who heads Portugal’s central bank, led the pushback against a bigger move, saying the choice should be a 25 basis-point increase or a pause.

“I don’t see any reason whatsoever to do more,” he told Bloomberg. “We target headline inflation — we don’t target core.”

Italy’s Ignazio Visco struck a similar tone, arguing that the lagged effects of tightening to date are still materialising.

“Uncertainty is very high and we have to be very cautious,” he told CNBC. “We have to show that we are determined but also patient.”

As officials have gone to great lengths to highlight, economic data will be the key determinant of the ECB’s next rate decision. On top of inflation figures for April, they’ll be much to chew over before than — including releases on bank lending and economic growth from across the 20-nation euro area.

The coming days will also bring speeches from top officials who didn’t comment publicly in Washington, such as chief economist Philip Lane and executive board member Isabel Schnabel.

ECB president Christine Lagarde will speak, too — perhaps offering investors clues on the kind of consensus that’s emerging among her colleagues.

https://www.theedgemarkets.com/node/663504

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ECB Should Be Open to All Options on Rates: Simkus

Bloomberg Television

The European Central Bank should consider all options when it sets interest rates in May, according to Governing Council member Gediminas Simkus.

Despite raising borrowing costs by 350 basis points since last July, the ECB “is not done,” the Lithuanian official told Bloomberg's Maria Tadeo.

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ECB’s Lagarde says she can’t imagine US will default on debt

(April 16): European Central Bank (ECB) president Christine Lagarde said she doesn’t foresee the US defaulting on its debt, saying such an outcome would have dire consequences around the world.

“I have huge confidence in the US,” Lagarde said in an interview for CBS’ Face the Nation on Sunday (April 16). “I just cannot believe that they would let such a major — major — disaster happen.”

“If it did happen, it would have very, very negative impact not just for this country, where confidence would be challenged, but around the world,” Lagarde added. “I understand the politics. I’ve been in politics myself. But there is a time when the higher interest of the nation has to prevail.”

Lagarde stepped into the fray as the US stares down a potential debt default that could send shock waves through the world economy. US President Joe Biden’s administration is insisting there will be no debt-limit negotiations with House Speaker Kevin McCarthy, whose Republicans have been seeking to link an increase in the ceiling to cuts in US spending.

The US Treasury Department is employing extraordinary measures to avoid a debt-limit breach, but the cap must be raised this summer to avoid a default. McCarthy is slated to give a speech to the New York Stock Exchange on Monday that’s expected to focus on the stand-off.

Prominent US bankers and officials such as Treasury Secretary Janet Yellen have warned for months against bringing the US to the brink.

A similar showdown in 2011 rattled financial markets and prompted Standard & Poor’s to issue the first-ever downgrade of the US government’s credit rating. Then US president Barack Obama agreed to more than US$2 trillion in spending cuts over a decade to end the crisis.

Lagarde issued her warning after attending the International Monetary Fund’s Spring Meetings in Washington, where finance officials from around the world discussed the economic outlook amid challenges posed by inflation and elevated debt spurred by the Covid-19 pandemic and the war in Ukraine.

Faced with pressure for further euro-area rate increases to counter inflation, Lagarde said a limited credit tightening might make the ECB’s task easier, echoing comments by Yellen.

“If they don’t lend too much credit and if they manage their risk, it might reduce the work that we have to do to reduce inflation,” Lagarde said. “But if they reduce credit too much, then it will weigh on growth excessively.”

It’s “a fine balance”, she said.

https://www.theedgemarkets.com/node/663580

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ECB's Lane Favors Interest Rate Hike at May Meeting

Bloomberg Television

European Central Bank Chief Economist Philip Lane says it would be "appropriate" to raise interest rates at the next policy meeting in May, with the size of that move determined by incoming data.

He speaks on "Bloomberg Markets: European Close" at the Bloomberg New Economy Gateway Europe event in Ireland.

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ECB may have to raise rates through July, Governing Council member says

(April 20): The European Central Bank (ECB) may need to raise interest rates in June and July following next month’s hike, according to Governing Council member Klaas Knot.

“It’s too early to talk about a pause,” the Dutch central bank chief told the Irish Times newspaper in an interview published on Thursday (April 20). “For a pause, I would really need to see a convincing reversal in underlying-inflation dynamics.”

The ECB is widely expected to raise rates again on May 4, though the pace of tightening remains in doubt, as other global central banks approach the end of their hiking cycles. As well as price pressures, policymakers are assessing the fallout from the recent financial-sector stress, before deciding on whether to opt for a quarter- or half-point step.

Knot, who’s among the hawkish members of ECB’s Governing Council, said the size of the next rate move will probably be determined by April inflation data, which will be published two days before the meeting.

He said he’s “not uncomfortable” with the current money-market wagers on a further 75 basis points of tightening.

“We are now in what I would call mildly restrictive territory with policy rates, but inflation is not mild,” he said. “Inflation is still much too high. We need a sufficiently restrictive stance. Where is sufficiently restrictive? I don’t know, but clearly not where we are today.”

https://www.theedgemarkets.com/node/664229

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ECB’s Lane says current data indicate a rate hike on May 4

(April 25): Recent economic figures suggest the European Central Bank (ECB) should increase interest rates again at its next decision on May 4, chief economist Philip Lane told French newspaper Le Monde.

“The current data are indicating that we should raise rates again” next week, Lane said in an interview published on Tuesday (April 25). “This is still not the right time to stop. Beyond that, I don’t have a crystal ball; it will depend on the economic data.”

The interview — published just over a week before the next meeting — is in line with remarks from other policymakers and signals another hike in the ECB’s deposit rate is all but certain, with the only remaining question over the size of the move.

Whether it’s a quarter- or a half-point step hinges now on inflation and bank-lending numbers due two days before the decision. Officials are offering their final remarks before a quiet period begins on Thursday.

Lane himself didn’t tell Le Monde how big a hike he prefers, stating instead that “the analysis suggests that it would be inappropriate to leave our deposit rate at the current level of 3%.”

Comments Monday suggested Bank of France chief Francois Villeroy de Galhau may favor the smaller of the likely increments, with money-market investors also seeing that outcome as more probable.

The larger option remains on the table, however, according to ECB executive board member Isabel Schnabel.

“Inflationary pressures remain in certain sectors of the economy, but are easing in others,” Lane said. “I don’t think we are in a 1970s-style situation, when inflation was in fact sticky.”

To avoid ending up in a position like that, “it’s important that the ECB raises its interest rates to ensure inflation returns to 2% in a timely manner,” he said.

https://www.theedgemarkets.com/node/664496

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ECB should keep raising rates until mid-2024, EU must tighten fiscal policy

STOCKHOLM (April 28): The International Monetary Fund called on the European Central Bank on Friday (April 28) to keep raising interest rates until the middle of 2024 and on European Union finance ministers to tighten fiscal policy in concerted action to bring down high inflation.

The head of the IMF's European Department Alfred Kammer said ahead of a meeting of EU finance ministers and central bank governors in Stockholm that inflation was the biggest worry.

"Our main policy recommendation is to defeat inflation and that means we need to use the instrument of monetary policy. For the ECB that means further tightening, tightening for longer — we estimate until mid-2024 — in order to bring inflation down to target sometime in 2025," Kammer said.

"Inflation is a tax, in particular on the poor, and that needs to be tackled."

Headline inflation in the 20 countries using the euro was 6.9% year-on-year in March, but core inflation, which excludes large swings in energy and food prices, was even higher at 7.5%.

To bring inflation down to its target of 2%, the ECB has been aggressively raising interest rates, taking them from zero in mid-2022 to 3.5% in March, but few in financial markets expect the policy tightening to continue beyond 2023.

Economic data from across the euro zone on Friday painted a mixed picture for growth and inflation, potentially making the ECB's interest rate decision next week — whether to raise rates by 25 or 50 basis points — more difficult.

Kammer said EU finance ministers had to support the ECB by reducing the fiscal stimulus to the economy that they rolled out during the Covid-19 pandemic and then continued during a cost-of-living crisis triggered by Russia's invasion of Ukraine.

"Inflation cannot be just dealt with by the central bank, you need fiscal policy to support it," Kammer said, adding an expected substantial reduction in budget deficits in 2023 in EU countries did not materialise because government packages to support citizens against high energy prices were extended.

"So... we are recommending now, with energy prices coming down... to phase out cost of living packages and, if they're not being phased out, to make them more targeted," Kammer said.

"When you have a fiscal contribution, that means the (ECB) tightening does not need to be so high, it means interest rates can stay lower, that means less financial stress."

The IMF's call was heeded by Swedish Finance Minister Elisabeth Svantesson, who said inflation was her main focus.

"It is a priority here in Sweden because if inflation does not come down we will have problems for many years ahead," Svantesson said. "I know it is also the priority of many other finance ministers."

Spanish Finance Minister Nadia Calvino told reporters Spain would bring down its budget deficit to 3% of GDP — the EU's upper limit — as soon as in 2024, a year earlier than planned, thanks to stronger growth and job creation.

https://www.theedgemarkets.com/node/665009

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IMF's Kammer: Further ECB tightening is required to defeat inflation

CNBC International TV

Alfred Kammer, director of the European department at the International Monetary Fund, says core inflation is persistently high and "there's nothing worse than pausing an inflation-fighting effort too early … because if you need to do it a second time, the costs to the economy are so much larger."