ECB’s Müller: Time Will Tell What Our Terminal Rate Needs To Be

3 March 2023

By David Barwick – LJUBLJANA (Econostream) – European Central Bank Governing Council member Madis Müller on Friday said that it was impossible to say now where the ECB’s terminal rate would lie and that this was something time would tell.

Speaking to reporters following a lecture at Banka Slovenije on inflation differences in the Eurozone, Müller, who heads the Estonian central bank, said, ‘In terms of the terminal rate, I just cannot tell you. I don’t think … anyone can really tell you, and … we should just wait until … we see that there really is a trend, also a downward trend in core inflation consistent with what we want to see in terms of the 2% inflation target.’

‘But when exactly that will … take place and when will we see it and how far we need to … still hike interest rates, I think just time will tell’, he continued. ‘We need to see how the decisions we have taken so far will gradually work through the economy. … At the end I think we need to be data-dependent, of course not only looking at the past data, but also try to evaluate the outlook … and see if looking forward, we are on the right path.’

Müller urged again that ‘as central bankers, we just should not hesitate’ to act.

‘I’m not saying that anyone is hesitating right now’, he clarified. ‘But as a principle … given the inflation outlook, also the fact that … yesterday’s February number for core inflation again went up a little bit, and that these underlying pressures for inflation are still so strong, it really is important for the central bank also to act and make sure that we get in a reasonable time back to 2% with the average inflation.’