After seven consecutive big hikes, interest rate hikes in Europe are nearing a halt. Experts, and even the central banker himself, say so because with the 375 basis points increase, it is believed that the price of money has reached a restrictive level and is close to being high enough to bring inflation back to 2% Is.
But this pause will not mean a complete end to interest rate hikes. This is clarified by informed sources, who assure that the European Central Bank (ECB) is looking closely at designing its own stoppage in Australia.
In April, Australia decided to pause its cycle of money price increases to give room to act on monetary tightening, the effects of which are being passed along a lag to the real economy. However, in May, it raised them again to 3.75%, noting that additional pressure was needed to bring inflation down completely. And that is the mirror in which the ECB will be seen.
“Having reached a conditional pause is optimal, given the intensity with which interest rates have risen, it is very difficult to specify what would be the optimal point to pause, as most of the effects have not yet been observed.” are”, indicate the financial sources. And they say that “it makes sense to leave some margin and assess the situation when the data comes.”
The ECB will by no means claim that it has finished tightening its monetary policy, but has decided to adopt a “wait and see” stance. In this way, the monetary authority will reserve the option to increase interest rates again if it deems fit, with a guide to the market that will seek to minimize surprises and minimize the negative impact of doing so.
Its purpose is to show that the resumption of tightening is not an error in monetary policy, but a reappraisal.
In any case, the Governing Council has not held an official discussion on the future pause of interest rate hikes. The institution, headed by Christine Lagarde, has set its sights on the next meeting, in which it will almost certainly raise rates by 25 basis points, to 4%.
Like the Federal Reserve (Fed), the ECB’s idea is to reach a higher level of interest rates and then maintain them for a while, until they see concrete signs that underlying inflation (which is the most volatile, such as energy or food) Extracts components) ) 2% is on a path towards the goal. It currently stands at 5.6%.
In the absence of discussion on this at the moment and in future meetings, it seems that different members of the decision-making body have different positions on what steps to take before a future recession.
Fabio Panetta, a member of the ECB’s executive committee and a recognized dove of the institution, affirms that, if the monetary authority’s intention is to maintain high rates long enough to appease inflation, the peak will have to be reduced. instead of increasing them. Cut rates fast.
“Now that interest rates are in restrictive territory, the most important thing is how long they stay,” Panetta said.
On the other side of the coin is Dutch Central Bank President Klaas Knut, who has recently indicated that he may support taking rates to 5% and beyond. That rate level would signal a strategy of pressure on the economy that would make it difficult to keep rates very high for very long.
Between these two positions that represent the two extremes, the rest of the central bankers walk the entire constellation of brown, noting that there is still more or less a way to go, but the end is near.
All members of the ECB are clear that beyond a possible one-off rate recalibration, a recession should occur when there is no margin for inflation to spiral out of control again. If this happens, the Frankfurt-based institution could face credibility problems, as Vice President Luis de Guindos has warned on several occasions.