Next week, the ECB Governing Council will meet for an interest rate meeting – an interest rate hike of 0.5 percentage points is considered agreed.

Christian Siedenbiedel

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This makes it all the more attentive at the moment to all statements made by members of the Governing Council of the ECB when asked what happens next. No interest rate meeting is planned for April, so all eyes are on May. Jari Stehn, chief European economist at investment bank Goldman Sachs, is now raising his interest rate forecast, especially after comments by ECB chief economist Philip Lane. He now expects another strong interest rate hike of 0.5 percentage points in May. Previously, he had assumed 0.25 percentage points. At its peak, the ECB will raise its deposit rate, which is currently 2.5 percent, to 3.75 percent to fight inflation, Stehn now says. Previously, he had assumed a maximum value of 3.5 percent.

How strong is the interest rate hike?

The latest inflation figures for the euro area triggered a wave of statements by ECB Governing Council members. The inflation rate had fallen slightly, from 8.6 percent in January to 8.5 percent in February. However, this was less of a relief than many had hoped.

In addition, the core rate of inflation, i.e. inflation excluding strongly fluctuating prices such as energy and food, rose from 5.3 to 5.6 percent, the highest level since the introduction of the euro. So it is clear that the ECB will have to fight to get inflation under control. Critics say it is now taking revenge that the ECB started fighting inflation too late.

In the sometimes somewhat convoluted language of the central bankers, it is now wrestling over whether interest rates "continue to rise" or "continue to rise significantly" after the March meeting – these could be ciphers for an interest rate hike of 0.25 or 0.5 percentage points in May.

The head of the Austrian central bank, Robert Holzmann, is particularly pressed ahead: If the core rate of inflation does not weaken significantly in the first half of the year, he expects four interest rate hikes of half a percentage point each this year, he said. Then you would come to 4.5 percent.

The head of the Belgian central bank, Pierre Wunsch, told journalists in Brussels that an interest rate level of 4 percent would "not be ruled out". Bostjan Vasle (Slovenia) and Madis Müller (Estonia) at least expressed the expectation that the rate hike in March would not be the last.

ECB chief economist Lane also said in a lecture at Trinity College in Dublin that the latest figures indicated that it would be appropriate to continue raising rates after the March meeting. Portugal's central bank chief Mário Centeno, on the other hand, pleaded for driving "on sight" after March.

Nail clear, visco cautious

At an event with former Bundesbank President Jens Weidmann at the Frankfurt School of Finance & Management last week, Italian central bank governor Ignazio Visco said there were signs that inflation would ease in the medium term.

Among other things, he cited consumers' inflation expectations in surveys as an argument. He pleaded for a "gradual" course of monetary policy normalisation. Weidmann said about Visco that despite all the quite different monetary policy views, he considers Visco to be one of the best economists in the ECB Governing Council.

Bundesbank President Joachim Nagel, on the other hand, said during his bank's balance sheet press conference: If inflation remains so persistent, he could well imagine that not only "interest rate hikes" but "significant interest rate hikes" would be necessary beyond March.

However, the extent to which the inquisitive words will now be followed by deeds is controversial among ECB observers.

"My impression is that the markets and ECB observers are strongly influenced by the higher inflation rates that we saw in February in all currency areas," said Karsten Junius, economist at Bank J. Safra Sarasin. Naturally, this strengthens the arguments of the hawks in the ECB Governing Council, i.e. the representatives of a tighter monetary policy, vis-à-vis the doves, the representatives of a loose course.

Marco Wagner, ECB observer at Commerzbank, said: "In fact, the recent speeches sounded a bit more hawkish – but I think this impression is also due to which ECB Governing Council members spoke recently." He would rather expect the ECB to slow down interest rate hikes after the March meeting. And that the central bank is "probably not too far away from the high interest rates".