If there is consensus to raise the interest rate to 3 % in March, the various governors disagree on the future. Should we stop at 3.25 %, 3.5 %, 3.75 %, or even more?
by Eric Albert (London, Correspondence)
Does the European Central Bank (ECB) are preparing to stop the increase in its interest rates or, at least, to slow it down? A public force test opposes in recent days doves and hawks, the first believing that monetary hardening must soon end.
From July 2022, in order to combat the strong inflation push, the ECB increased its interest rates. That of deposit went from – 0.5 % to 2.5 % today, the faster monetary tightening since the creation of the single currency. The Frankfurt institution has already announced that it would drop to 3 % at the time of its March 16 meeting. But then?
“We enter a gray area,” said a member of the Management Board. Should we stop at 3.25 %, 3.50 %, 3.75 %? Even more, if inflation is not fucked? In the United States, the Fed (Central Bank) began to slow down the pace, increasing, during its last meeting, its rate as 0.25 points, to a range between 4.5 % and 4.75 % .
In this perspective, some of the twenty-six Governors of the ECB have started to position themselves. Fabio Panetta, an Italian member of the Management Board, was the first to draw on February 16. “We will increasingly have to take into account the risks of too strong monetary hardening,” he said during a trip to London. According to him, inflation is in the process of slowing down, there are no firing signs, and increasing interest rates too much may weaken an economy already in stagnation.
” A background race “
Almost immediate response of Isabel Schnabel, a German also a member of the Management Board: “We are far from declaring victory against inflation.” She advocates the opposite approach: to wait to have “robust proofs” of a change of trend before slowing down the increase in interest rates. These few words have caused a stir in the financial markets. The loan rate of German bonds at ten years increased from 2.4 % to 2.5 %, that of France, from 2.9 % to 3 %.
“[These] fluctuations (…) may appear excessively volatile”, replied, in turn, François Villeroy de Galhau, the governor of the Banque de France. In this debate, he is rather on the side of the doves, judging that at the “sprint” of the increase in interest rates since the summer of 2022 “succeeds a underlying race”. It sets the following framework: the interest rate “will probably go beyond 3 %”, and its “high point” will be reached “by summer” … period which ends in September, he takes care to specify. Should we understand that it targets 3.5 %?
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