PT Solid Gold Berjangka | Some ECB Officials Worried Markets Risk Derailing Disinflation

01:16 19 January in Fiscal & Monetary, PT SGB, SOLID GOLD BERJANGKA | SOLID GROUP


Solid Gold Berjangka | Some European Central Bank officials fretted when they last set interest rates that investor wagers for monetary easing could upend their efforts to curb inflation, an account of the last policy meeting showed.“Concern was expressed that the sharp market repricing threatened to loosen financial conditions excessively, which could derail the disinflationary process,” according to the account of the Dec. 13-14 gathering, which was published Thursday.

The release comes as ECB officials look to pour cold water on market expectations of aggressive reductions in borrowing costs starting in the spring. Investors have shifted their bets a little amid the pushback, but their view remains at odds with policymakers’ preference for starting easing around the middle of the year.

“It was widely felt that market expectations reflected significant optimism and were inconsistent with the outlook in the staff projections, with respect to both the inflation outlook and the rate path embodied in the technical assumptions,” the ECB said.

Other key comments from the account:

On Interest Rates

“It was argued that a significant part of the interest rate pass-through was still pending, with the overall peak impact on activity seen in early 2024 and the bulk of the impact on inflation still expected over the next two years.”

“The impact of monetary policy tightening was increasingly visible and was broadly proceeding as intended: financing and credit conditions had tightened, lending had been slowing, aggregate demand had been weakening and underlying inflation had been easing.”

On Markets

“The pronounced swing in market pricing over recent months had resulted in strong movements in financial conditions indices.”

“Almost all components of the standard financial conditions indices pointed towards a substantial loosening of financial conditions to levels last seen at the start of the year.”

“Speculative positions pointed to a future appreciation of the euro against the dollar, consistent with expectations of a ‘soft landing’ of the euro area economy.”

On Inflation

“During the past two years all measures of underlying inflation had first increased and then fallen significantly, giving only a blurred signal on the underlying inflationary forces.”

On the Economy

“Macroeconomic data, excluding inflation, had also come in better than expected in the euro area, alleviating fears of a ‘hard landing’ of the economy”

“It was argued that the December staff projections for growth in the near term might be too optimistic overall, also considering that mechanical nowcasting tools continued to point to slower economic activity and the possibility of a technical recession.”

Source : Bloomberg