ECB rate hike should be 'more gradual' than 50 bps, Visco says

KOENIGSWINTER, Germany (Reuters) -The European Central Bank should raise its policy rate out of negative territory with the first move coming in July, but the process should be "more gradual" than suggested by some, ECB policymaker Ignazio Visco said on Friday.

Financial markets now expect to see 105 basis points of ECB rate hikes by the end of the year, increasing their bets since Dutch central bank chief Klaas Knot said that a 50 basis-point move could be needed if inflation pressures rise.

"I have no issue with the exit but I think it should be more gradual than someone might have thought," Visco, who heads the Italian central bank, told a press conference after a meeting of the Group of Seven financial policymakers in Germany.

"It's a gradual exit process. There's nothing wrong if it starts in July," Visco added.

With inflation holding at a record high 7.4% - nearly four times the ECB's target - all but a handful of policymakers have made the case for a rate hike in July, the ECB's first increase in over a decade.

Bundesbank President Joachim Nagel, also attending the G7 meeting, agreed that the first rate move could come in July, with further hikes following soon after.

Several ECB policymakers have also argued for lifting the minus 0.5% deposit rate back into positive territory this year, which would imply at least three 25-basis point moves.

Exiting negative rates has become uncontroversial, however, Visco argued, saying that "nearly all of us" in the rate-setting Governing Council agree on the idea.

French central bank chief Francois Villeroy de Galhau, one of the policymakers publicly arguing for a positive central bank rate by year end, said that the ECB's biggest threat was inflation.

"The threat number one in the short term is inflation... This is our responsibility as the central banks and we accept this responsibility and we commit to master inflation," Villeroy told a separate news event on the sidelines of the G7 meeting.

The ECB's deposit rate has been in negative territory since 2014.

(Reporting by Francesco Canepa and Leigh Thomas; Writing by Balazs Koranyi; Editing by Louise Heavens and Hugh Lawson)