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The key interest rate in the euro area is at a record high.
However, economist Ulrike Malmendier sees a change coming in the summer.
© Hendrik Schmidt / dpa
Interest rates in Europe are at a record high to combat inflation.
However, economic experts expect a turnaround in the summer.
Berlin – The economist Ulrike Malmendier sees the European Central Bank (ECB) heading towards a turnaround in interest rates by the middle of the year.
The guardians of the euro would probably give way to the US Federal Reserve (Fed), the economist told the
Reuters news agency on Wednesday (February 21):
“I think they will wait to see what the Fed will do and then “The ECB could then take its first easing step “around June”.
Economics wants to wait and see “what the Fed will do”
Malmendier considers such a sequence of steps to be quite sensible given the direction of interest rate developments.
She does not assume that inflation will be fueled again.
“The one concern I have is about the recession,” added the economist, who teaches in the US.
If there were to be a series of two quarters of shrinking economic output in Germany and perhaps France also weakened, in her view this could persuade the ECB to cut interest rates a little earlier or in larger steps: “If that happens, I would I'm a bit worried about whether we can really get inflation under control.
But I hope it won’t be like that,” said Malmendier.
ECB has passed “baptism of fire”.
The ECB has essentially “passed its baptism of fire” and has taken energetic steps to combat high inflation in the past.
There were also fears that the monetary authorities around ECB boss Christine Lagarde could be too soft: “That will give them credibility in the markets,” said Malmendier.
“I hope they don’t jeopardize it if it comes to that, when several EU countries sink into recession and the temptation might be to move too quickly, too big.”
The German ECB director Isabel Schnabel recently warned against lowering interest rates in the euro zone too early given the ongoing uncertainty regarding inflation developments.
Investors are wondering when the ECB and the US Federal Reserve will loosen monetary policy.
The ECB has been keeping interest rates unchanged since September 2023 after a series of increases in the fight against inflation.
The deposit rate that financial institutions receive when they hoard excess funds with the central bank is 4.0 percent.
(Reuters, lf)