The rate hike in September was meant to increase confidence that the ECB would achieve its inflation target, so it was like taking out extra insurance, in a way. In light of recent, more encouraging data, is that extra insurance still warranted or can it be rolled back? The first point to make is that there has been progress on inflation in recent months. It is hard to be exact about the role of individual hikes, but of course the September interest rate hike has helped with that. By underlining that the ECB will maintain a restrictive policy, it has helped cool down inflation expectations and moderate price setting in the autumn. Second, once the ECB begins lowering interest rates, this would not be by a single decision of a rate cut, there would most likely be a sequence of rate cuts. The September hike means the peak rate has been higher than it otherwise would have been. I recognise that there was an insurance element in that rate hike. And I will fully take that into account in terms of the scale and timing of the rate adjustment towards a more neutral monetary policy stance when it comes to it. What is it that the market is getting so wrong by expecting ECB rate cuts by March or April, and for these to then continue rather aggressively in 2024? Do you believe the market discounts euro area recession, due in part to a more restrictive German budget, that were not included in the more recent ECB staff projections? The inflation release for December was broadly in line with our projections – I’m not seeing some major downside surprise. It was in line with our signal that there would be a jump post: ECB RELEASES MEDIA INTERVIEW WITH PHILIP R. LANE ECB'S LANE WARNS AGAINST RAPID CHANGES IN INTEREST RATES
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2024-01-14 01:00:00Z
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