European Central Bank officials struggling to figure out how to wean the eurozone from extremely loose stimulus measures are beginning to plan a monetary policy that remains far less aggressive than their global counterparts, according to Bloomberg .
In contrast to tightening efforts by the US Federal Reserve and the Bank of England, which have pushed investors to bet on such moves in the Eurozone as well, ECB Governors are focusing on possible “normalization” as they weigh the prospects for inflation. fall closer to the 2% target.
Such rhetoric, which emphasizes the need for financial support amid insufficient confidence that rising consumer prices will become self-sustaining, was recently implied by leading economist Philip Lane. It indicates that the ECB has begun to look for a middle ground where monetary policy will be neither facilitative nor restrictive.
This is the background to today’s meeting of the Governing Council of the ECB, the first since its decision to close offshore markets in March and slow down the overall bond market this year. Any discussion of a future withdrawal of stimulus measures is likely to affect interest rate hikes along with the shrinking of the ECB’s balance sheet by 8.6 trillion. euro.
“They will have to be patient and flexible and gradual [στις αποφάσεις τους] to maintain the recovery, “Agnes Belaisch, head of European strategy at Baring Investment Services Limited, told Bloomberg.” They will be able to do that if the guidance is clear.
This is not easy. As the tightening of monetary policy is underway globally, investors are pricing an increase in ECB interest rates by 25 basis points before the end of this year. Such bets have been boosted by faster-than-expected inflation. On Wednesday, inflation in the Eurozone accelerated unexpectedly to 5.1%the highest since the creation of the single currency.
Officials complain that such a move is not justified by guidance, a view accepted by economists surveyed by Bloomberg, who predict that the quantitative easing will end in March, followed by a rate hike six months later.
“They have found themselves at a dead end, insisting that there will be no interest rate hikes this year,” said Anatoli Annenkov, a senior economist at Societe Generale SA.
Source: Capital
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