By David Barwick – FRANKFURT (Econostream) – The next set of European Central Bank staff macroeconomic projections for the euro area, due to be unveiled on Thursday, will see medium-term inflation little changed, while forecasts for 2023 will include substantial revisions to both inflation (upwards) and growth (downwards), an ECB insider told Econostream.
1 September 2022
Exclusive: ECB’s Stournaras: Misguided to Hike Rapidly at the Risk of Needing to Backtrack Soon
- Stournaras: ‘Should err on the side of caution rather than on the side of speed’
- Stournaras: Unwarranted wage growth would justify aggressive hiking, but wage growth ‘okay’
- Stournaras: Would like monetary policy to normalise without destabilising output
- Stournaras: ‘Don’t think we’re anywhere close to actual action’ with respect to QT
- Stournaras: QT now ‘could make the situation much more difficult for the real economy’
- Stournaras: TLTRO redemptions to bring ‘a lot of shrinking’ to ECB balance sheet
- ECB insider: We committed ourselves strongly to 25 basis points in July already
- ECB insider: Still, if case is made that something changed significantly, then we could do more
- ECB insider: ‘Hard to imagine a substantial improvement in the inflation outlook’
- ECB insider: ‘I see only upside risks, not downside risks’
- ECB insider: ‘Might be a need for stronger action from the central bank’
- ECB insider: Could be dangerous to do less than what our HICP projections assume
- ECB insider: Stagflation ‘would still require raising interest rates anyway’
By David Barwick – FRANKFURT (Econostream) – Following is the full transcript of the interview conducted by Econostream on June 28 with Pablo de Ramón-Laca Clausen, General Director of the Tesoro and Financial Policy, Spain’s sovereign debt issuer:
1 July 2022
- Spain DMO head: Tax revenues increasing very significantly, so funding needs declining
- Spain DMO head: Expect our greenium to settle at around three to four basis points
- Spain DMO head: Debt sustainability not currently a problem in any Eurozone country
- Spain DMO head: Spreads ‘have to be justified by fundamentals’
- Spain DMO head: Anti-fragmentation tool will help ECB tighten policy faster, more credibly
Exclusive: ECB’s Kazāks: Would not exclude that we need to take stronger action in July
- Kazāks: ‘Fair case to discuss whether 25 basis points in July are still appropriate’
- Kazāks: ‘We should always keep the door open to discussion’ and not carve each step in stone
- Kazāks: Observing indications of expectations mounting; this could justify bigger rate steps
- Kazāks: Increased risk of nonlinearities means frontloading rate hikes would be reasonable
- Kazāks: ‘See further increases in our rates in the remaining meetings at the end of the year’
By David Barwick – FRANKFURT (Econostream) – Following is the full transcript of the interview conducted by Econostream on June 27 with Mārtiņš Kazāks, Governor of Latvijas Banka and member of the Governing Council of the European Central Bank:
28 June 2022
Exclusive: ECB Insider: When You Develop an Anti-Fragmentation Tool, It Means You’re Afraid
- ECB insider: Would be good to have an anti-fragmentation tool, but there are also risks to this
- ECB insider: Issues of communication make us ‘not that much inclined to work on that instrument’
- ECB insider: PEPP framework can always be renamed and employed as an anti-fragmentation tool
- ECB insider: ‘There are views that we need to start more general discussions’ about QT
- ECB insider: ‘Time to start talking now for [QT] decisions to be ready sometime later in the future’
- ECB insider: ‘One day we will approach’ topic of neutral rate, but now dealing with hiking
- ECB insider: ‘Very broad and diverging views’ on where neutral rate stands
- ECB insider: Lagarde said, ‘We may have different views, but today we need to take a decision’
- ECB insider: ‘Very high probability it’s going to be 25 basis points’ in July
- ECB insider: If inflation expectations de-anchored, ‘would we stick to 25? I don’t think so’
- ECB insider: Gradualism is ‘a relative concept’, not an automatic objection to 50 bps
- ECB insider: Once Fed decided on 50 bps each meeting, obvious ECB must think about our steps
- ECB insider: Starting with 25 bps and then doing 50 would be ‘more gradual than 50 on the spot’
- ECB insider: ‘The relevant thing will be the path’ of rates, not so much each step
- ECB insider: ‘This is a war that is already lost’
- ECB insider: ‘No point in fighting something that is going to happen anyway’
- ECB insider: ‘We are not going to do FX interventions’
- ECB insider: ECB won’t explicitly take any specific action because of the exchange rate
- ECB insider: ‘Parity for euro-dollar is just one figure like the others’
- ECB insider: We stand ready to react flexibly to fragmentation; ‘forget about specific tools’
- ECB insider: I assume there will be similar provisions for APP as for PEPP reinvestments
- ECB insider: Hiking rates not so risky that we need to prepare for damage control ex ante
- ECB insider: It’s the sovereigns, not the ECB, that need to take care of their spreads
- ECB insider: Must see other jurisdictions’ QT experience, so ECB hawks not yet pushing the issue
- ECB insider: QT is ‘one of the optionalities that we have if there is a need to start it earlier’
- ECB insider: ‘Things are moving so fast that I wouldn’t be surprised at being surprised’ on QT
Exclusive: Symmetrical Distribution of Key ECB Rates Optimal, But No Urgency Seen
- ECB insider: Spread calibration need not be objective of early phase of policy normalisation
- ECB insider: Huge liquidity surplus that we now have ‘is going to be there for a while’
- Holzmann: One purchase programme still there, scheduled to end in July
- Holzmann: Greatest concern is inflation expectations
- ECB insider: Higher depreciation of euro can affect HICP projection at end of horizon
- ECB insider: Agree with Klaas Knot that we should counter continued euro depreciation
- ECB insider: ‘Sudden [exchange rate] shifts need to be taken into account’
