“Civil war” in the ECB on when the reductions will start

Different views European Central Bank officials seem to have a handle on when interest rate cuts should begin, which shows the opposing camps that have formed within the ECB. France’s central banker and member of the ECB’s Governing Council, Villeroy de Gallo, threw down the gauntlet to his colleagues by suggesting that monetary policy easing could happen at any of the central bank’s next meetings. Until now the ECB has given an official signal for reductions from the beginning of the summer onwards.

Germany’s central banker Joachim Nagel seems to be moving in the opposite direction to Villeroy de Gallo, who before the statements of his counterpart from France had stated the opposite, saying that it is better to be late in reducing interest rates than what to reduce them earlier than they should. Nagel had even urged the other members of the ECB to be patient in assessing the situation. One of the concerns of ECB hawks like Nagel for an immediate cut in borrowing costs is whether wage increases in the euro zone could trigger a broader revival of price pressures.

The president of the ECB, for her part, believes that the central bank should not proceed with a hasty reduction in interest rates. The reduction in prices towards the 2% target is being achieved, “but we need to be more confident”, believes Christine Lagarde.

Nagel was echoed by Isabel Schnabel, a member of the European Central Bank’s Executive Committee, who warned of risks if inflation rebounds after a brief rate cut. Schnabel believes that monetary policy should remain accommodative until the ECB is confident that price increases will return firmly to the medium-term target of 2%.

For his part, the ECB’s “doves” seem to include Spain’s central banker Pablo Hernandez de Kos, who tries to balance his statements between the two camps. As he said, there is no rush for the European Central Bank to reduce borrowing costs. “The belief that inflation will continue to slow and converge towards the 2% target is what leads us at the Governing Council to believe that the next move in interest rates will be a cut (…) We are not clear on when that will happen, I think there is still some time for that,” he said.

France’s central banker was more aggressive in his assessment: “We should avoid two balanced risks: cutting (interest rates) too quickly and missing the (inflation) target, but also acting too slowly and slowing down too much activity,” he said. Villeroy de Gallo also has many investors on his side. Money markets are now showing a nearly 90% chance of a rate cut in April.

He is also joined by Portugal’s Mario Centeno, who said a rate cut could happen before May, and Lithuania’s central banker Gediminas Simkus, who believes a cut could even happen in April if they allow it. the data.