With the ECB, uncertainty hangs over the issue of raising rates, and we will eventually get used to this air ballet between “pigeons” and “hawks” supporters of tougher competition).
Yes, on Saturday Christine Lagarde worried about the risk of stagflation in the eurozone, but she, who wants to be “neither blue nor hawk”, remained silent about the possible and future strengthening of monetary policy pursued by the European institution. based in Frankfurt, Germany.
She said this the day after an interview with an Italian daily The Press Fabio Panetta, a member of the ECB’s Executive Board, in which the side of the “pigeons” said that in conditions of slow growth and rising prices “complicates the choice” security guards of the euro because strengthening monetary policy aimed at curbing inflation will lead to restraint of already weakened growth “.
For Ollie Ren, we must prevent inflation and its consolidation
But since then, the hawks seem to be launching a real offensive in the corridors of the European Central Bank. After Governor Villeroy de Gallo, last Friday, it was his turn Finnish Olli Rehn will vote. This Monday morning in the German press, the chairman of the Central Bank of Finland also called for an increase in interest rates by the European Central Bank (ECB), and “quickly”: since July, when the eurozone is experiencing high inflation.
“We must prevent rising inflation expectations,” the ECB’s board member told Die Welt in an interview, referring to Russia’s invasion of Ukraine.
“Therefore, it is important to signal in this direction. It is advisable to raise the key rate in the third quarter, probably in July,” he added.
In an interview with Die Welt, Finn added:
“I think it would be justified raise the deposit rate by 0.25 percentage points in July and reduce it to zero in autumn. After that normalization [du resserrement] monetary policy could be continued gradually and actively. »
According to a member of the ECB’s Board of Directors, inflation “affects people’s psychology” through a pre-emptive response to the effects of inflation, and therefore it should be stabilized, and this is due to the normalization of monetary policy.
The actual lack of wage increases in the euro area, in contrast to the United States
However, Olli Rehn believes that the forecast for inflation in the euro area is very different from the forecast in the United States, where the economy overheated, and inflation accelerated to 8.5% in March.
“The increase in wages in the United States averaged 6%. In the eurozone, recovery continues, but the labor market did not recover so quickly, and wage increases barely exceeded 2%»he explains The world.
And why such a difference? According to a member of the ECB’s executive board, the eurozone economy suffers more from the Russian invasion than the US economy:
“This means a drop in wage pressure in the eurozone. The need to raise interest rates would also be less, ”said Olli Rehn, giving several points to the Pigeon Camp.
But, according to analysts, this situation will not continue: due to a significant increase in consumer prices, workers will begin to demand a relatively large increase in wages. As a result, companies will have to shift the growth of labor costs to the prices of goods and services they sell, which will worsen inflation.
Inflation and the war in Ukraine: great caution for euro guards
Indeed, inflation in the euro area has already risen very high, reaching a historic level of 7.4% in one year in March, significantly higher than the ECB’s medium-term target of 2%.
That’s the whole discussion between hawks and pigeons, this situation should push the ECB to raise rates, like other major central banks, but euro guards are doing everything to slow down decisions, as the situation in Ukraine causes uncertainty in the near future. The lack of visibility about Vladimir Putin’s intentions encourages them to be as careful as possible.
The rate increase, which will be the first since 2011, will be an important step in the ongoing process of normalization of adaptive monetary policy in response to crises, in particular those related to COVID-19 from 2020.
“In my opinion, raising the rate is possible in July”last Tuesday, the German economic press already supported Isabel Schnabel, another member of the ECB’s executive committee.
Villerois de Gallo is in favor of at least three rate hikes in 2022
Last Friday, it was Francois Villeroy de Gallo, the head of the Central Bank of France, who said he was in favor of returning the deposit rate to positive territory by the end of 2022. These remarks show that this member of the Council ECB leaders are in favor of at least three rate hikes in 2022.
The ECB has begun to cut its exceptional support for the economy, but record consumer price indices and rising long-term inflation expectations are prompting more and more ECB members to recommend an end to unconventional monetary policy. tools.
The ECB should first stop buying bonds in late June and then raise interest rates on deposits at “next” monetary policy meetings, said Francois Villeroy de Gallo, without specifying a start date for the rate hike.
“Pigeons” begin to persuade “hawks”
Some ECB members recently called for a rate hike in July, which met with little opposition from the institution’s pigeons, suggesting that a rate hike this summer is now the most likely option.
“I prefer to put the mark a little further: apart from the new unforeseen shocks, I think it is wise to enter positive territory by the end of the year,” the governor of the Banque de France said during a conference in Paris.
It will mean a return to the positive zone of the deposit rate, which is now -0.5%. minus three quarter rate increases by the end of the year. The European Central Bank should then gradually move its nominal rate to a “neutral” level, ie between 1% and 2%, added Francois Vilrois de Gallo.
Inflation is the main justification for raising rates, as recent polls suggest that inflation expectations are “less and less” tied to the ECB’s 2% target.
Rising rates can also support the euro against the dollar, the weakness of the single currency contributes to imported inflation.
“The level of the euro is of great importance for imported inflation,” said Francois Villeroy de Gallo. “Too weak a euro will run counter to our goal of price stability.”
(from AFP and Reuters)