The ECB cools expectations of another rise of 0.75 points for December
The Chief Economist of the European Central Bank (ECB), Philip Lanehas ensured that the institution will raise interest rates again at its next meeting in December, although it has lowered expectations regarding the scope of the next increase, after two consecutive increases of 75 basis pointsnoting that “there is no longer a platform” to consider a very large increase.
“In December we will make another increase,” Lane advances in an interview with Market News, although he warns that “there is no longer a platform to consider a very large increase, such as 75 basis points.” In this regard, he explains that while the current level is still below where it should be, the more it has gone up cumulatively, the pros and cons of any given increase change.
“The higher the level of the interest rate, the smaller the remaining gap to the target rate (…) the more we have done, the less we have to do,” he points out. In this way, the Irish economist stresses the need to take into account the inflation outlook for december and the different point at which the euro area is and also recognize that there are delays in the process of transmitting monetary policy decisions.
The ECB Governing Council will establish a roadmap
Likewise, in reference to the process of reducing the ECB’s balance sheet, known as quantitative adjustment (QT), Lane cautions that it’s not intertwined with rate hikes, though he admits that you want to make “decent progress” on raising rates before you start planning for QT.
“By December, we will have made decent progress on that,” he adds, recalling that the ECB’s Governing Council plans to establish a roadmap in Decemberwhich will later become a more precise plan that will reduce the bond portfolio acquired under the asset purchase program (APP).
“I don’t think we’re going to be meeting by meeting interfacing the interest rate decision with the pace for the next month or two. It should probably be more mechanical than that,” he explains. The ECB has increased interest rates by 200 basis points in three consecutive increasesthe last two, in September and October, of 75 basis points each.
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