ECB to Discuss 50 BP Hike on Thursday, Reuters Reports; Euro Hits 2-Week High

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ECB to Discuss 50 BP Hike on Thursday, Reuters Reports; Euro Hits 2-Week High
Credit: © Reuters.

By Geoffrey Smith -- The European Central Bank will discuss raising its official interest rates by 50 basis points on Thursday, not just the 25 basis point rise it has flagged, Reuters reported on Tuesday, citing unnamed sources.

The report conflicts with the bank's guidance: at the time of its last meeting, the ECB said it intended to raise rates by 25 basis points at this month's meeting, and again in September. At the time, the only concessions it made to those wanting faster action to bring down inflation was to allow the possibility of a larger move at the September meeting.

Reuters' sources also said the governing council is closing 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. Bond yield spreads have widened significantly within the Eurozone as the ECB's first rate hike in a decade has drawn near, with the volatility made worse by the fraying of the Italian government coalition.

The spread between the benchmark German and Italian 10-year yields has widened at times to over 250 basis points last week as Prime Minister (and former ECB President) Mario Draghi threatened to quit. However, it has stabilized at around 200 basis points since then, while the yield on the 2-year Italian note has come down from a high of 2.12% to 1.26% as of 3:50 AM ET (0750 GMT).

The euro , which fell below parity with the dollar for the first time in 20 years last amid fears that the ECB is behind the curve in fighting inflation, rose 0.8% on the news to its highest in nearly two weeks at $1.0220

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