ECB’s Zigman sees a fairly strong chance of a December rate hike

Another interest rate hike at the December meeting is highly likely in the view of European Central Bank (ECB) Governing Council member Ante Zigman, according to his comments carried in a Bloomberg report.

ECB: Key questions answered

How does the ECB operate and influence the Euro?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone's central bank, setting the region's interest rates and overseeing monetary policy. Keeping inflation at around 2% is central to the ECB's main mandate of maintaining price stability. To meet this objective, it primarily raises or lowers interest rates. The Euro generally strengthens when interest rates are relatively high, while the reverse is usually true when rates are relatively low. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the Eurozone's national central banks and six permanent members, among them ECB President Christine Lagarde.

How does Quantitative Easing (QE) work, and what does it mean for the Euro?

A weaker Euro is the usual outcome of Quantitative Easing (QE), a policy tool the European Central Bank can deploy in extreme circumstances. Under QE, the ECB prints Euros to purchase assets, typically government or corporate bonds, from banks and other financial institutions. When interest rate cuts alone are unlikely to deliver price stability, QE provides a last resort. The ECB deployed this tool during the Great Financial Crisis in 2009-11, again in 2015 as inflation stayed persistently low, and during the Covid pandemic.

How does Quantitative tightening (QT) work, and why does it affect the Euro?

Usually supportive of the Euro, or bullish, Quantitative tightening (QT) reverses QE. It follows QE once an economic recovery is under way and inflation begins to rise. Under QE, the European Central Bank (ECB) supplies liquidity to financial institutions by purchasing government and corporate bonds from them. Under QT, however, it halts further bond purchases and no longer reinvests the principal repaid as bonds in its existing holdings mature.

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