The European Central Bank (ECB) warns: its crusade against inflation is not over yet. On this occasion, well into 2023, the threat of a price rise comes hand in hand with the underlying rate (which excludes energy prices and fresh food), a situation in which they warn of possible rises in interest rates. beyond this March. The will meet on the 16th to raise the reference rate for money prices by another 50 basis points, up to 3.5%, as has been confirmed on previous occasions. Now they open the door to continue with this dynamic.
The ECB’s chief economist, Philip Lane, has dropped during a conference in Dublin that inflationary pressures in the medium term can be offset if they manage to bring interest rates to a sufficiently restrictive level to moderate demand and the level of consumption, with the focus placed on the aforementioned underlying rate. Lane has specified that although the tensions in the price of energy and raw materials have been reduced, labor costs continue to rise due to the growth in wages.
“Current information on underlying inflationary pressures suggests further rate hikes after our March meeting will be appropriate,” said the former chairman of Ireland’s central bank. He will also organize on March 16 his table of macroeconomic forecasts that include GDP and inflation prospects, data that will serve as a guide for the road map this year.
The statements are in line with those made this week by the president of the ECB, Christine Lagarde, who has referred to inflation as a “monster”. The latest data show a rate of 8.5% during February after easing one tenth, while the underlying rate has eased to 17.2%, a level that continues to be “unacceptably high”.
In an interview with ‘El Correo’, he assured that the rates have no ceiling, since the only objective of the ECB is for inflation to sit at 2%. Lagarde refers to the fact that this rise in rates can be offset with the remuneration of deposits and calls for negotiations with banks so that users can benefit from this situation.
Both Lagarde and Lane defend that the ECB does not foresee a recession this year, since the economy has been more resilient than the ECB expected and should recover in the coming quarters, so it has more room to raise the price of money. . This Wednesday the data for the annual GDP for 2022 in the euro area will be published, which will serve to determine the first effects of the vertiginous awakening of monetary policy.
The Austrian ‘hawk’ advocates rates at 5%
In parallel, the Governor of the National Bank of Austria and member of the Governing Council of the European Central Bank (ECB), Robert Holzmann, has gone a step further and defends the need for the eurozone issuing institution to adopt restrictive measures with increases of 50 basis points in each of the next four meetings of the entity, which would bring the reference interest rate to 5% from the current 3%.
“If we want inflation to return to 2% in the foreseeable future, we have to take restrictive measures,” said Holzmann, considered one of the main representatives of the ‘hawks’ within the ECB Governing Council, in an interview with the German newspaper ‘Handelsblatt’. In this sense, the Austrian central banker has been in favor of the ECB raising interest rates by 50 basis points in each of the four monetary policy meetings ahead, starting on March 16, as well as in those of May, June and July.
In this way, for Holzmann it would be possible for the maximum point of interest rates in the euro area to be reached in “the next twelve months”. Likewise, for the Austrian central banker it would also be advisable to undertake a reduction of the ECB balance sheet at a higher monthly rate than 15,000 million euros, since, in his opinion, the balance sheet of the ‘Guardian of the euro’ is very large and for reduce it to a reasonable value, you will probably have to be a little more aggressive.