We haven't finished assimilating yet. historical rise of 0.75% of interest rates and the president of the German Bundesbank is already calling for further significant increases. Joachim Nagel believes that the ECB must intensify its efforts to combat the sustained rise in inflation and that there are definitely signs that inflation is affecting many areas of the economy, as he explained in an interview with Deutschlandfunk. Therefore, he warns, it is now important to continue taking monetary policy action.
The ECB's move last Thursday was a clear signal, he admits. "And as I said, if the inflation picture remains the same, other clear steps in the same direction must be followed," notes the German central bank president, "in the near future, of course." Nagel assumes that price growth will accelerate and that inflation could peak at more than 10% in December in Germany. He also predicts that, by 2023, the annual rate of increase will probably be too high, more than 6%, well above the ECB estimate, which points to an inflation rate of 2%. "The bottom line is that stable prices are ultimately much more important for medium- and long-term growth and a good economic outlook for the euro area," he adds.
Faced with the opinion of Nagel, the most recognizable of the "hawks" within the ECB's governing council, the also member of the council, the Portuguese Mario Centeno, positions himself, who advises "caution" in the next meetings and avoid "exaggerated reactions ». The decision to speed up the rationalization course was, in his opinion, "very important." However, the central bank must "remain predictable", the governor of the Portuguese central bank has warned. "The worst case scenario for a currency watchdog is that it goes back and forth on its decisions and lags behind the data," Centeno said in an interview with Bloomberg, describing Thursday's decision to raise interest rates at 75 basis points as "advance charge". The ECB is acting »faster than the June and even July forecasts do«, he criticizes, «however, this does not mean that we are moving towards a higher final level».
Given the two positions, the meeting of the governing council in October will host a serious debate between those who want the ECB to stop its reaction and those who will defend another hike of even 75 new basis points. Later this year, the debate will also turn to when and how the ECB should start to tighten quantitatively, ie cut its balance sheet, which has been inflated by bond purchases. Centeno says that interest rates are "clearly the best tool" to deal with the current situation and that it is important not to undermine efforts to contain inflation through collective bargaining.
The fact is that inflation has so far been steadily climbing, always one step ahead of the ECB. The slogan is now, according to the press conference offered by its president, Christine Lagarde, after the last meeting of the governing council, is to maintain the pace of rising money prices as a strategy to prevent inflation from creeping in through all layers of the economy and see into the medium-term prospects. Lagarde openly spoke of several successive rises in interest rates in the coming months. The market has taken him at his word and points to a maximum level of 2.5% for the deposit facility, from the current 0.75% and possibly with rate hikes extending to 2023. At Pimco, the largest income manager in the world, they expect that the ECB will try to bring policy rates into neutral territory, where there is neither a stimulus nor a restraint effect on the economy, fairly quickly. In fact, they have two increases of 50 percentage points in October and December and quarter point increases in 2023.
At Nomura they go further and calculate two successive hikes of 75 basis points in October and December, until leaving the deposit facility at a level considered neutral of 2.25%, to which would be added an increase of more than a quarter of a point in February 2023. And from Credit Suisse they also see the end point for rate hikes in 2.5% of the deposit facility, back in March 2023, having previously registered a rise of 75 points in October, another half point in December and two in a row quarter-point early next year.