ECB again Eyes Jumbo Rate Hike to 'Tame Inflation Beast'

The European Central Bank is pushing back against market expectations that it will lift borrowing costs in 2022 - AFP via Getty Images
The European Central Bank is pushing back against market expectations that it will lift borrowing costs in 2022 - AFP via Getty Images
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ECB again Eyes Jumbo Rate Hike to 'Tame Inflation Beast'

The European Central Bank is pushing back against market expectations that it will lift borrowing costs in 2022 - AFP via Getty Images
The European Central Bank is pushing back against market expectations that it will lift borrowing costs in 2022 - AFP via Getty Images

The European Central Bank is expected to set aside recession worries and deliver another jumbo interest rate hike this week to cool inflation, as Russia's war on Ukraine sends energy prices soaring.

Inflation in the 19-nation eurozone climbed to an all-time high of nearly 10 percent in September, five times the ECB's target of two percent, AFP said.

The ECB's governing council last month raised its key interest rates by an unprecedented 75 basis points, and many observers expect it to repeat the move at Thursday's meeting.

Households and businesses are bracing for a grim winter as Russia continues to squeeze gas supplies to Europe, raising fears of energy shortages and eye-watering high electricity and heating bills.

The war has also pushed up food costs, while pandemic-era supply chain snarls combined with higher manufacturing costs have added to price pressures on a range of goods.

"Those who thought inflation was dead now know better," said Joachim Nagel, the head of Germany's Bundesbank central bank.

"Now the beast has woken up from its slumber... it's up to monetary policymakers to tame it again," he recently told students at Harvard University.

Like other central banks, the ECB is using a series of rate hikes to bring inflation under control -- at the risk of slowing economic activity to such an extent that it triggers a downturn.

"The 75 basis point rate hike looks like a done deal," said ING economist Carsten Brzeski.

"The ECB has turned a blind eye on recession risks," he added.

Analysts from Capital Economics said they saw the ECB going even bigger, predicting a 100 basis-point jump followed by smaller hikes over the coming months.

- 'Not painless' -
In the United States, where inflation is running at a 40-year high, the Federal Reserve recently said there was no "painless" way to combat runaway prices.

A slowdown of economic growth and the US job market will be "required" to bring down inflation, said the Fed, which has hiked rates faster and more aggressively than the ECB.

ECB president Christine Lagarde has warned that the euro area was also facing "a significant slowdown".

If Russia completely cuts off gas flows to Europe, the eurozone economy could shrink by nearly one percent in 2023, ECB vice-president Luis de Guindos added.

It's a scenario that has become more likely after Russia in late August halted gas flows through the crucial Nord Stream 1 pipeline to Europe's biggest economy, Germany.

- Government spending -
The German economy, whose energy-hungry industries relied heavily on Russian gas before the war, is now forecast to shrink by 0.4 percent in 2023.

Chancellor Olaf Scholz has unveiled a 200-billion-euro ($197 billion) energy fund to help citizens cope with price shocks, irking European neighbours who can't afford the same fiscal largesse.

With other eurozone countries such as France and Spain also rolling out support measures, the ECB has warned governments not to fall into the trap of spending so much that they boost inflation.

Germany's hawkish Finance Minister Christian Lindner agreed, saying last week that fiscal policy "must not counter the measures of central banks" by strengthening demand.

The ECB is also expected to use this week's meeting to discuss bringing other monetary policy levers in line with its inflation-busting efforts.

Policymakers are likely to consider changes to the super cheap, long-term loans (TLTROs) offered to banks in recent years to help the eurozone through several crises -- sometimes at negative rates.

As a consequence of the ECB's rapid rate hikes since July, lenders can now make a profit by parking their excess TLTRO cash at the central bank and pocketing the new, higher deposit rate -- leaving the ECB looking for ways to incentivize early repayment of the loans.

The ECB may also ponder how best to shrink its multi-trillion-euro balance sheet, after years of hoovering up government and corporate bonds to drive up stubbornly low inflation.

But given the uncertain outlook and the risk of rattling financial markets, analysts say the start of any "quantitative tightening" is some way off.



Iraq Oil Output Exceeds 5 million bpd

Majnoon oil field near the Iraqi city of Basra (Reuters)
Majnoon oil field near the Iraqi city of Basra (Reuters)
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Iraq Oil Output Exceeds 5 million bpd

Majnoon oil field near the Iraqi city of Basra (Reuters)
Majnoon oil field near the Iraqi city of Basra (Reuters)

Iraq produces more than 5 million barrels of oil per day (bpd), Oil Minister Basim Mohammed told state news agency INA on Saturday.

According to Reuters, Iraq is pushing for a higher OPEC production quota as the economic fallout from the Iran war and new investment by oil majors increase pressure on Baghdad to boost output, potentially putting it at odds with the producer group.

The conflict has hit Iraq particularly hard, forcing major export cuts and depriving the state of oil revenue, which accounted for 88% of government income last year.


IMF: Any Slowdown in AI-driven Growth Would be Factor for Central Banks

IMF Managing Director Kristalina Georgieva speaks during the Annual Meetings Plenary at the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) at the Queen Sirikit National Convention Center (QSNCC) in Bangkok on October 16, 2026. (Photo by Lillian SUWANRUMPHA / AFP)
IMF Managing Director Kristalina Georgieva speaks during the Annual Meetings Plenary at the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) at the Queen Sirikit National Convention Center (QSNCC) in Bangkok on October 16, 2026. (Photo by Lillian SUWANRUMPHA / AFP)
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IMF: Any Slowdown in AI-driven Growth Would be Factor for Central Banks

IMF Managing Director Kristalina Georgieva speaks during the Annual Meetings Plenary at the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) at the Queen Sirikit National Convention Center (QSNCC) in Bangkok on October 16, 2026. (Photo by Lillian SUWANRUMPHA / AFP)
IMF Managing Director Kristalina Georgieva speaks during the Annual Meetings Plenary at the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) at the Queen Sirikit National Convention Center (QSNCC) in Bangkok on October 16, 2026. (Photo by Lillian SUWANRUMPHA / AFP)

Central bankers around the world would need to consider any slowdown in AI-driven growth as they assess steps in their fight against inflation, International Monetary Fund Managing Director Kristalina Georgieva said on Friday.

Georgieva said concerns about dependence on the AI investment boom and high valuations were impacting markets around the world.

"Things are going up and down, and this is likely to continue," she told an audience at IMF headquarters in Washington, adding that the volatility would complicate the job of central banks at a time when risks to price stability had been growing.

A steep rout in technology stocks on Thursday rippled through markets on fears that ⁠the Democrats' victory ⁠in the US midterm elections would increase regulatory scrutiny of AI and slow the data center build-out, sending investors to the safety of bonds.

The political jitters are hitting an AI trade already on shaky footing due to worry about return on massive spending on AI-related infrastructure, with the meltdown spurring margin calls and spooking retail investors and hedge ⁠funds alike.

Georgieva said the AI investment boom was lifting growth in some countries, helping to offset a negative oil-supply shock triggered by the war in the Middle East, but it was also adding to inflationary pressures and financial stability concerns.

The IMF last month flagged significant growth and financial stability risks from a potential ending of the AI investment boom, among other factors, including a prolonged Middle East war. At the time, it warned that a steep drop in AI investment could lead to a sharp fall in asset prices, ultimately cutting global GDP ⁠by 1.1% ⁠by 2028, including a 1.8% drop in US output.

Georgieva did not repeat the downside forecast on Friday, but acknowledged the recent market volatility.

"Should there be a slowdown in the AI-driven growth impulse, it would need to be factored in as central banks assess the necessary steps in the fight against stubborn inflation," she said.

Democrats are planning to unleash a flood of new legislation targeting artificial intelligence systems and data-center development when they take control of the US Congress in January, Reuters reported on Friday, citing congressional aides and advocates.

That would mark a sharp shift from the Republican-led Congress, where lawmakers largely focused on promoting AI development and declined to pass legislation restricting the technology.


World Food Prices Dip in October, but Remain Higher Than a Year Ago

A worker carries loaves of bread for sale at a bakery in the capital city of Cairo, Egypt November 4, 2026. (Reuters)
A worker carries loaves of bread for sale at a bakery in the capital city of Cairo, Egypt November 4, 2026. (Reuters)
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World Food Prices Dip in October, but Remain Higher Than a Year Ago

A worker carries loaves of bread for sale at a bakery in the capital city of Cairo, Egypt November 4, 2026. (Reuters)
A worker carries loaves of bread for sale at a bakery in the capital city of Cairo, Egypt November 4, 2026. (Reuters)

World food prices edged lower in October as weaker import demand contributed to monthly declines in cereal, dairy and meat prices, but were still nearly 6% higher than a year earlier, the United Nations' Food and Agriculture Organization said on Friday.

The FAO Food Price Index, which tracks monthly changes in international prices for a basket of food commodities, ‌averaged 133.9 points ‌in October, down from a revised ‌135.6 ⁠in September.

The index ⁠was 5.9% higher than a year earlier, but remained 16.4% below its March 2022 peak.

FAO's cereal price index fell 4.5% from September and was 12.6% lower than a year ago, as wheat and maize quotations declined. Wheat prices eased on weak import demand ⁠and improved production prospects, especially in Argentina.

"Expectations of ‌easing constraints on Black ‌Sea export flows added to the downward pressure on prices, ‌although continued disruptions to Black Sea logistics limited the decline," ‌FAO said in a statement.

Maize prices also eased after reaching a three-year high in September, pressured by the US harvest, expectations of ample supplies in South America and renewed ‌prospects of easing tensions in the Black Sea region.

Vegetable oil prices edged up 0.3%, ⁠as ⁠higher soybean and sunflower oil prices more than offset a fall in rapeseed oil prices.

Sugar prices rose 6.6%, their fourth straight monthly increase, to the highest level since December 2024, after rainfall disrupted harvesting in Brazil. They were now 28.8% above a year ago.

The dairy index fell 1.1%, as lower butter and cheese prices linked to ample supplies and subdued demand outweighed gains in milk powder.

The meat index declined 1.2%, while still slightly above its year-earlier level, as ovine and bovine meat prices fell.