From President Christine Lagarde’s perspective, the ECB is well on its way to reducing inflation in the eurozone to two percent. But the ‘all clear’ could not yet be given – this is also due to states such as Austria, which are far behind the target.
Lagarde is now confident that the European Central Bank (ECB) will achieve its medium-term target of two percent, Lagarde told Bloomberg TV on the sidelines of the World Economic Forum in Davos on Wednesday.
“We are on the right track, we are moving towards two percent,” she said. But she won’t declare victory yet. ‘No not yet.’ The ECB will receive data on this year’s collective labor agreements in the countries in late spring. “We will probably know a lot more in April and May,” she said. This data would give the ECB a good idea of how inflation will develop.
Domestic outlier in a European comparison
Austria is about four times above the ECB’s target. Annual inflation remained at a very high level of 7.8 percent in 2023. Domestic inflation was 2.8 percentage points above the eurozone average in December, putting the Republic at the bottom of the list.
Lagarde did not want to comment on expectations on the stock market, where people are already betting on a first interest rate cut in March or April. “Exchanges do their job, they have their numbers, they have their goals,” she said. According to Lagarde, this could complicate the ECB’s work to combat inflation if they misinterpret the ECB’s actions.
“Markets are too rushed”
From the perspective of Dutch central bank chief Klaas Knot, the financial markets are going too far with their expectations of rapid interest rate cuts by the European Central Bank (ECB). “The markets are too rushed, that’s quite clear,” the ECB Governing Council member told CNBC on the sidelines of the World Economic Forum on Wednesday.
In its economic forecasts, the ECB assumed an interest rate path that provided significantly less interest rate easing than is currently reflected in stock market prices. “If we roll back some of the restrictions that we currently have, it will be a very gradual rollback and not a headlong rollback,” he noted.
Plateau reached?
There are expectations in the financial markets regarding key interest rates that the central bank will not confirm, Knot said. Regarding the current interest rate level, he said: “We are currently at a plateau.” It is unlikely that interest rates will be raised again.
If the risks that could push up inflation actually materialize, it would be more likely to leave rates at current levels for longer than to raise them further. “But that could mean that the first interest rate cut comes later than currently expected,” Knot said.
Source: Krone
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