The neutral interest rate has become in recent months the great unknown for central bankers and, consequently, for markets. It is one of the key pieces at this time to know where interest rates will be stabilized, both in the United States and in the euro zone, and therefore, in the last monetary policy meetings of the Federal Reserve and the European Central Bank , questions about the neutral type have been repeated. Anticipating this, the ECB, through its president, Christine Lagarde, said last week that this Friday, February 7, he will publish his official estimates on the neutral type. The agency will announce which is the fork in which this fact places and, The publication of the ECB can have a remarkable impact on the markets, especially if it separates a lot from the estimates.
The search for the neutral interest rate in the euro zone has played a leading role in recent years. From the pandemic, analysts consider that the neutral interest rate (the level of types with which a central bank does not affect the economy, or stimulating it, or contracting it) has changed, and is now higher than in the period in the period which has elapsed since the great financial crisis, and the arrival of COVID-19.
The last years have not been easy for analysts and investors making their decisions based on the expected movements for central banks, and in part it has been for the search for the lost neutral interest rate. Without knowing where the neutral type is, it is very difficult to make cabals on where interest rates will be stabilized and, consequently, the fixed income market.
The differences in the forecasts of the central bankers themselves are the best example of the ignorance that exists about the neutral type. If in the United States the fork where the Fed members themselves see it is the broadest that the statements of the ECB members confirm that the situation is not very different.
President Lagarde has ventured to place the neutral type between 1.75% and 2.25%, according to their personal estimate, but This fork does not coincide with that maintained by other members of the Central Bank Governing Council. For example, the German Isabel Schnabel, one of the ECB hawks (supporters of maintain They place it between 2.2% and 2.8%. Villeroy de Galhau, meanwhile, and Yannis Stournaras, place it in 2%, and Mario Centeno is seen by a step below.
The latest survey you have launched Bloomberg In this regard, between January 17 and 22, places the neutral type between 2% and 2.25%. If 2% is taken as a reference, a level that seems to always be present in the estimates, this scenario would fit with which analysts now expect for the interest rates of the euro zone: the futures market on the types sees them in 2% at the end of this year, after three decreases more than 25 basic points by the ECB in the next meetings.
Of course, it must be remembered that the neutral type does not necessarily coincide with the ground where the price of money will be stabilized in the coming months. Everything will depend on what the Central Bank wants to do: if you consider that the economy is in balance, and that it wants to keep it that way, it will leave the types at the level at which you see the neutral type. But there is the possibility that inflation falls below the objective of 2% of the ECB, or that it stays above. In the first case, the theory will force the ECB to lower the types below neutrality, to try to boost inflation, while in the second case the types should be left above neutrality, to continue pressing down to the progress of prices. AND What happens in this front will determine the movements of fixed income, to adapt to the new situation.
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