It is possible that in Frankfurt the link that imposes a tightening of rates “shortly after” the end of Qe is removed
The war in Ukraine also falls into discussions within the ECB for the exit from expansive measures. While the markets are betting on the invasion of Eastern Europe it will force central banks to hold back on rate hikes.
In Frankfurt everything seemed ready for an acceleration of the closing of the quantitative easing in the third quarter and for a first rate hike between the end of the year and the beginning of 2023. However, this scenario has moved away, as even ECB hawks, including the Austrian governor, have acknowledged Robert Holzmann and the German board member Isabel Schnabel.
“The normalization of monetary policy may be somewhat delayed,” admitted Holzmann. “The shock of the war has clouded global growth prospects2, found Schnabel. So yesterday, he writes MFespecially after Holzmann’s words at 16.20, 10-year government bond rates fell significantlyespecially those of Italian bonds (-13 basis points to 1.81%), but also Spanish (-8 basis points), French (-7) and German (-6 to 0.17%).
The spread has retraced to 164 points. L’Russian invasion complicates a picture that was already difficult for the ECB, struggling with the impact of high energy costs. The further increase in oil and gas will cause inflation to rise in the short term, but will reduce demand and growth, with a downward impact on the cost of living in the medium term, the decisive one for ECB policies. In December, Frankfurt forecast inflation at 1.8% in 2023 and 2024, still below the 2% target. On 10 March there will be an overall revaluation of the economy: the central bank seemed oriented to raise the projections. Achieving 2% would pave the way for the normalization of monetary policy.
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