ECB Insight: de Guindos Makes July Lift-Off Sound No Less Likely Than It Was, Perhaps Even More
2 May 2022
By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Sunday reinforced the notion that the ECB could hike rates as soon as July, all while somewhat perfunctorily assuring that the precise date was no foregone conclusion.
In an interview with daily Spanish paper El Correo, the number two at the ECB was asked right off the bat about the timing of lift-off. Whether July would bring the first rate increase ‘will depend on the data and the new macroeconomic projections in June’, he said.
‘In April the ECB’s Governing Council decided that asset purchases will end in the third quarter’, he continued. ‘In my opinion, there’s no reason why this shouldn’t happen in July. Rates will rise after that. Exactly how long after has not been decided. It could be months, weeks or days. July is possible, but that’s not to say it’s likely.’
Here it must be noted that in another interview on April 21, the ECB’s number two responded to the same question that ‘[t]heoretically everything is possible’, expressed the preference that ‘the [asset purchase] programme should end in July’ and said that ‘for the first rate hike we will have to see our projections, the different scenarios and, only then, decide.’
‘It will depend on the data we see in June’, he added on April 21. ‘From today’s perspective, July is possible and September, or later, is also possible.’
What’s new now? In terms of the comments per se, de Guindos’ little remark from Sunday that ‘July is possible, but that’s not to say it’s likely’, probably indicates a desire to tamp down market expectations of a July lift-off. But it is quite clear that he is not trying to extinguish them.
After all, not saying that a July rate hike is likely is by no means the same as saying it is unlikely or offering just some small hint, which he refrained from doing, as to what might make July less preferable than the other apparent leading contender, September.
Comments by the ECB about what’s likely when need to be taken with caution anyway, as de Guindos’ comments both on Sunday and in particular last February 23 about market speculation sometimes missing the mark hardly applies only outside the Eurotower.
Econostream also thinks the following remark by de Guindos in Sunday’s interview, characterising the time lapse between an end of net asset purchases and a first rate hike, is worth noting: ‘It could be months, weeks or days’, he said.
That ‘some time after’ could mean months or at least one week was always known, but de Guindos adds the word ‘days’ as if to leave no room for the misconception that any meaningful time lapse between the two events is a given. This too, especially in light of his own repeated preference for ending net asset purchases in July, leaves a July lift-off squarely on the table.
As usual, de Guindos was happy to accuse anyone thinking the ECB hadn’t acted sufficiently promptly of confusing the euro area with the US. Although Russia’s military aggression against Ukraine had already led to ‘a significant weakening of growth’, he continued to reject a recessionary scenario.
On balance, we don’t see that much has changed as a result of this interview versus de Guindos' willingness 10 days previously to open the door to a July rate hike.