MAGGIE PAGANO: Christine Lagarde’s rate rise balancing act

All eyes will be fixed on the European Central Bank’s (ECB) meeting in Frankfurt today to see whether council members dare push up interest rates higher than the markets are expecting.

Some ECB members are said to be arguing for a 50 basis point rise rather than the 0.25 hike which has been flagged until recently.

The more hawkish members say now is the time to move sharply to choke off inflationary pressures and contain demand.

Tough call: European Central Bank boss Christine Lagarde is faced with a tricky decision on a eurozone interest rate rise

On the other hand, some members fear that higher borrowing costs will tip the eurozone into recession, particularly if Russia stops gas supplies coming into Europe this winter even though Nord Stream 1 is due back on stream soon.

But the decision – to go big to choke off inflation – is still wide open and looks set for fierce debate. It’s the first interest rate hike since 2011, and a tricky one for ECB president Christine Lagarde to balance.

She also has to ensure that too big a hike doesn’t hurt some of the most indebted of the eurozone countries, such as Italy, and will be announcing a new bond-buying scheme to curtail their borrowings.

Her decision is made more complicated by ECB forecasts that lower energy costs, the easing of supply chains and the return to more normal monetary policy will lead to a decline in inflation without too hasty action on rates.

Its latest predictions are for eurozone annual inflation at 6.8 per cent in 2022, falling to 3.5 per cent in 2023 and 2.1 per cent in 2024.

Andrew Bailey, the Bank of England Governor, has a similar dilemma. He warned in his annual City speech this week that while the prospect of a 50 basis point rise in interest rates will be discussed at next month’s monetary policy committee meeting, the amount was not set in stone.

As he says, there is a trade-off between jacking up rates too much in an attempt to dampen inflation – now at 9.4 per cent – and depressing demand too much, resulting in low growth and higher wage demands. 

Even May’s growth figures, which showed a small rise, should be treated with caution, he says.

Central bankers on both sides of the Channel should have acted sooner to choke off inflation, and cut back on quantitative easing. But with signs that some raw material prices are falling, it may not be the time to go over the top with too hefty a rate rise.

Softy-softly is perhaps more appropriate.

Treasury hotline

As I suspected, the main reason for SoftBank’s decision to put the float of Arm on ice is not because of the UK’s so-called ‘political turmoil’ – but more to do with the difficulties of organising such an ambitious dual listing on the New York and London stock exchanges.

Listing on both simultaneously has never been done before.

One problem has been the sheer amount of background paperwork required to jump the regulatory and accountancy hurdles required by the US watchdog, the Securities and Exchange Commission, and the UK’s Financial Conduct Authority.

According to one banker, it’s been a nightmare putting together the prospectuses, with too much duplication and overlap.

Another factor which has fed into the decision to take a break is the sorry state of the global IPO market which has all but seized up because of the fragility of the financial markets, even though investors are awash with money.

Yet that doesn’t mean the dual listing is dead. Far from it. Indeed, SoftBank’s Masayoshi Son has been persuaded of the benefits of going for a double-hit because of the depth of liquidity provided by having such a big pool of investors drawn from the Big Apple and London, and to have Arm in the FTSE 100 as well as the S&P 500.

It’s astonishing that this should be so difficult, particularly as the countries share a common language.

But there is something that could be done to help speed up the process: the UK’s Treasury and the US Treasury have the powers to make it easier for the regulators to nod through certain deals.

Whoever makes it to No 11 in September needs to bring back its former chief investment guru, Lord Grimstone, and get on the hotline to the US Treasury.

Nuclear reaction

Some good news on the energy front: planning has been finally approved for the £20billion Sizewell C nuclear reactor.

It will provide electricity for 6m homes and generate thousands of jobs.

Now all it needs is investors.

This post first appeared on Dailymail.co.uk