The representative of Germany on the Executive Committee of the European Central Bank (ECB), Isabel Schnabel, warns that the institution must “be careful about cutting interest rates much further.” The most ‘hawkish’ – the most aggressive, in the jargon of monetary policy – of the institution warns that the ‘price’ of money (the cost of financing) in the eurozone is already close to the level at which it does not stop the economic activity, and that lowering it further can be counterproductive in the fight against inflation.
Neither the place nor the time chosen by Schnabel to play the bad cop is a coincidence. The place has been ‘Bloomberg’one of the most important international economic information agencies with the greatest influence on financial markets. Meanwhile, the chosen moment is just before it begins the ‘quiet period’ (the time of silence) to which they are obliged the members of the Governing Council – the governors of the central banks of each euro country – and of the Executive Board of the ECB before each monetary policy meeting.
This “period of silence” extends for seven days prior to the meeting. The next one is scheduled to end with the traditional press conference on Thursday, December 12although it will begin a few days earlier because it is one of the four occasions throughout the year in which ECB economists update their economic growth and inflation forecasts.
Before Schnabel’s statements, the vice president of the institution, Luis de Guindos, acknowledged that the ECB’s concerns had shifted from high inflation to stagnant economic growth. He even explained that “when the central bank raises interest rates, it hopes that this will be transferred to banks (which is mainly reflected through the Euribor) and to the capital markets and that this will lead to a moderation in domestic demand.” , consumption and investment, and that this moderates inflation. If inflation projections for next year (close to 2%, the theoretical objective) are indeed going to be met, and we are increasingly confident in this, the trajectory of monetary policy is clear and is a reduction in the level of restriction”.
Schnabel’s speech is different. “Given the inflation outlook, I believe we can gradually move towards a neutral position if the data ahead continues to confirm our outlook. “I would warn against advancing too much, because that is entering expansive territory,” he tells ‘Bloomberg’.
Schnabel estimates that the neutral interest rate, which cannot be measured precisely, is between 2% and 3%, a higher level than that suggested by more moderate governors such as the Greek Yannis Stournaras and the Portuguese Mario Centeno. . Currently the ECB’s reference interest rates are at 3.25%. For this reason, the German thinks that “we may not be that far away” from that level now.
In his opinion, “the costs of moving to an expansionary monetary policy (with cheaper financing, which relieves mortgages and supports consumption and investment) could be greater than the benefits. “We would use valuable room for maneuver that will be needed in the future when the economy faces shocks that monetary policy can more effectively address.”
In mid-November, Goldman Sachs—one of the ‘strong hands’ of the financial markets—projected a fourth cut in the official ‘price’ of money in the eurozone of 0.25 points on December 12, to 3%, and five further decreases over the next year until leaving them at 1.75% in July.
Economic activity in the region needs oxygen, especially given the stagnation in Germany. This is evidence for the Goldman Sachs analyst team, despite the fact that the ECB continues to twist the rhetoric that its Governing Council will analyze the data “meeting by meeting” before continuing the easing of financing conditions that began in June of this year.
Goldman Sachs’ GDP (Gross Domestic Product) growth forecasts are more pessimistic than those released by the institution’s own economists in September. The bank projects an advance of 0.8% on average in 2025 for euro partners compared to 1.3% for the ECB, which will update these estimates precisely in December.
Goldman analysts also see lower inflation than the central bank chaired by Christine Lagarde, 2% on average in 2025 in the eurozone, compared to the 2.2% expected by the ECB.
This same week, Ángel Talavera, chief European economist at Oxford Economics, recalled in the presentation of his economic expectations for 2025 that the increases in interest rates have benefited, in aggregate terms, families in France and Germany, and have especially harmed those of Spain, among the large economies of the eurozone.
The main reasons for this unequal impact are that, in our country, the majority have variable interest rate mortgages, which are updated according to the Euribor, and that, in addition, the remuneration of savings – the returns on deposits offered by banks — have risen less in this cycle of monetary austerity. This occurs due to the lack of competition between financial entities.
Source: www.eldiario.es
