ECB Could Provide Clarity on Terminal Rate in March, Centeno Says

13 February 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member Mário Centeno said on Monday that the ECB’s terminal rate should become a lot clearer at its upcoming monetary policy meeting in March.

Centeno, who heads Banco de Portugal, noted that the ECB had stated its intention to hike by 50bp in March, but said that the central bank should remain open-minded.

‘March will be very important’, he said, ‘because the new forecast is going to tell us exactly where we are in this process and we for sure are much closer to that terminal rate than before; we are approaching it.’

The upcoming monetary policy meeting ‘will be a great moment for us to be very clear’ about the terminal rate, he said. There was ‘a huge probability or at least a significant probability’ that the ECB could provide concrete guidance on the subject, he said.

Issuing guidance on the terminal rate in March would nevertheless be dependent on the updated staff projections, he said, adding that he would stay short of promising something concrete, but that ‘the possibility exists for us to do that.’

On the probability of a 50bp hike in March, he said that although the ECB had declared its intention to make such a move, ‘we need to be open minded’, and ‘we will decide meeting by meeting and then being data dependent.’

Policymakers ‘need to be open to all possibilities’ he said, noting that ‘recently … inflation surprised us on the downside for the first time in many, many years; that's great for Europe.’

If the Governing Council saw that inflation was projected to be ‘close enough’ to its target of 2% in the medium term, ‘we can we can certainly pause this process of hiking’, he said.

The ECB could, he hoped, be clearer about its future moves: ‘hopefully we can be more predictable as long as this [downward] trajectory of inflation is set.’ He said that ‘our interest rate needs to converge at some point to what we call the natural rate, and we will do it because that's the nominal anchor that we need in monetary policy. And I think we have it in sight.’