ECB: Euro guardians signal tighter course against risk of inflation

Created: 02/16/2022, 11:39 am

According to ECB Director Isabel Schnabel, when assessing inflation, the rise in house prices should also be taken into account.

© Bernd von Jutrczenka/dpa

In view of high inflation rates, the pressure on the ECB to initiate the turnaround in interest rates is growing.

Now there are increasingly clear signals that the currency watchdogs also consider a tighter course to be necessary.

Frankfurt – In view of the high inflation in the euro area*, the signals for a tighter course are increasing ahead of the interest rate meeting of the European Central Bank (ECB) in March.

According to ECB Director Isabel Schnabel, when assessing inflation, the rise in house prices should also be taken into account.

, the German economist warned that the real estate boom increases the risk that the monetary watchdogs will act too late in changing monetary policy

.

With a view to further determining the course of monetary policy, she says: "We cannot ignore this."

ECB: French central bank governor makes proposals

Statements by the head of the French central bank, Francois Villeroy de Galhau, also attracted attention: at an event of the London School of Economics on Tuesday, he brought up an end to bond purchases as part of the APP program for the third quarter.

An end to the acquisitions is considered a prerequisite for an interest rate hike.

The Governing Council of the ECB has decided to end the bond purchases under the €1.85 trillion pandemic emergency program PEPP from spring.

So that the financial markets are not left dry afterwards, the smaller bond program called APP will continue.

So far, the monetary watchdogs have deliberately left the end open.

In its orientation line* for the financial markets - the so-called Forward Guidance - the Governing Council of the ECB assumes that the net purchases will be ended "just before" it starts raising the key ECB interest rates.

Villeroy now came up with the idea of ​​deleting the word "short" in order to be able to act more flexibly.

However, there is no need to come up with a rate hike plan ahead of the June interest rate meeting: "At this stage, any speculation about this roadmap for future hikes is premature."

ECB: Doubts about bond purchases

Schnabel also sees arguments in favor of an end to bond purchases.

Their benefits may not justify the additional costs, she told the

.

The ECB faces record inflation.

Inflation in the euro zone climbed to a new record of 5.1 percent in January, catching not only many experts but also the monetary watchdogs on the wrong foot.

Against this background, ECB boss Christine Lagarde recently no longer completely ruled out an interest rate turnaround in 2022.

Speculation on interest rates had recently run rampant on the stock exchanges.

There, increases of half a percent were even assumed by December.

The ECB left the key monetary policy rate at 0.0 percent.

At the same time, banks must continue to pay penalty interest if they park excess funds at the ECB: the deposit rate remained at minus 0.5 percent.

The last time the ECB raised interest rates was in 2011.

Lagarde has signaled there will be no abrupt change of direction.

She pointed out that the monetary watchdogs will have new economic and inflation forecasts from the ECB economists at the interest rate meeting on March 10th.

They would then be in a better position to assess the consequences of the latest surge in inflation.

ECB takes a critical view of inflation trends

Director Schnabel now indicated increased concern about the development of inflation.

If the increase in house prices were included, it would have a significant impact on measured inflation - especially core inflation, she warned.

Part of the ECB's revised strategy is to include owner-occupied housing in the future.

However, the head of the Austrian central bank, Robert Holzmann, emphasized in autumn that this was still a long way off for the time being.

In contrast to the USA, the costs for owner-occupied residential property* are not included in the shopping cart of the European statistical office Eurostat.

So far, only rents have been recorded there.

*