ECB hawks play down change in rate language as doves claim small win -sources

By Francesco Canepa, Balazs Koranyi and Frank Siebelt

FRANKFURT (Reuters) - Some European Central Bank policymakers played down a change in the ECB's official message on interest rates, which saw the bank remove a reference to "several" further hikes in the coming months, sources told Reuters.

The European Central Bank raised interest rates again on Thursday and said it expects to increase them "further" but it cautioned "substantial" progress had already been made in its bid to fight off a historic surge in inflation.

It also dropped a reference to increasing rates "over the next several meetings" that was in its September statement. Traders took it to mean that the series of large rate hikes that started in July was nearing an end.

Some policy hawks, who favour higher interest rates, said the change in guidance was not a major point of discussion at the meeting and barely noticed it in the ECB's official statement, four sources, who asked not to be named, said.

But doves, who defend lower rates, claimed that change as a victory, saying it paved the ground for ending the ECB's tightening cycle as soon as December or in March at the latest, the sources added.

Both camps also differed on their views about economic outlook, with doves emphasising the recent fall in commodity prices and especially natural gas as well as the clear signs of a recession in the euro zone.

Hawks, by contrast, said inflation showed no signs of abating and was likely to be fuelled by wage growth and the weak euro, meaning a slowdown in the pace of hikes was not warranted.

All sources were surprised by the large market reaction, which saw bonds and bank shares rally. This was also influenced by the ECB's decision to push back any decision on shrinking its pile of bonds and by better-than-expected new terms on the ECB's multi-year loans. [GVD/EUR] [.EU]

An ECB spokesman declined to comment. ECB President Christine Lagarde, speaking at a press conference on Thursday, said that it "might" take several meetings before rates peaked.

Noting the change in the wording, UniCredit economist Marco Valli said it could signal increased caution from the ECB.

"Despite the jumbo hike, communication turned more cautious," Valli said, noting several other small changes that highlight the darkened economic outlook.

(Reporting By Francesco Canepa)