ECB Rates Bets Show Traders Are Convinced of Second Jumbo Hike

Alice Gledhill and James Hirai, Bloomberg News

A railway bridge over the River Main near the European Central Bank (ECB) headquarters in Frankfurt, Germany, on Thursday, Sept. 8, 2022. The ECB is on the brink of a jumbo three-quarter-point increase in interest rates to wrest back control over record inflation, even as the risk of a euro-zone recession rises. , Bloomberg

(Bloomberg) -- Traders are certain that the European Central Bank will deliver a second three-quarter point rate hike in October as policy makers step up the battle against searing inflation.

Money markets now put the odds of a 75 basis-point move at 100%, according to swaps tied to ECB meeting dates. An increase of that size would double the key rate to 1.5%, its highest since 2008.

Expectations of another jumbo hike ramped up amid further hawkish comments from ECB officials and just days before the most recent euro area inflation data is published on Friday. Price increases in the region probably hit another record last month, just short of 10%, fueling expectations of aggressive tightening.

“It’s hard to argue against a 75bp hike at the October meeting,” Citigroup rates strategist Antoine Gaveau wrote in a note. The bank’s economists see headline inflation rising from 9.1% August to 9.8% in September.

Read more: Euro-Area Inflation Approaching 10% Will Test Lagarde

The move in rates pricing coincided with a speech by ECB President Christine Lagarde at the European Parliament. She said policy makers expect to keep hiking “over the next several meetings” to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.

That followed comments from ECB Vice President Luis de Guindos earlier on Monday, when he warned that record inflation is the biggest problem facing the region’s economy, threatening investment and consumer spending as it becomes more broad-based.

The ECB is due to hold its next policy meeting on October 27. The bank hiked the deposit rate by 75 basis points earlier this month, its biggest rate increase in more than two decades, despite concerns about the growth outlook.

Traders also ramped up bets on the scale of interest-rate hikes by the Bank of England in the short term, to deal with markets in turmoil over the government’s economic plans. Money markets earlier priced in more than 200 basis points of increases by the BOE’s next meeting in November, four times the size of its last hike.

(Updates throughout.)