ECB policymaker Makhlouf says upcoming policy decision will not surprise anybody
- The decision we’re going to make next week will not be a surprise to anybody
- Policy is not restrictive
- It would only be thereabouts roughly speaking, once we get above 2.75%
- ECB needs to be ready to move there if “a significant shift in an upward direction, in terms of inflation risks" materialises
- If inflation starts moving in the wrong direction, then we’re going to have to move in that direction
- For now, it isn’t clear that a further rate hike will be needed after the one next week
- ECB should continue to stick with meeting-by-meeting approach
- Inflation expectations are in a good place, no evidence of second-round effects in terms of wages
The full transcript can be found here (may be gated).
It’s definitely no surprise with markets already pretty much fully pricing in a rate hike for next week. And this pretty much confirms what the ECB will be doing, although Makhlouf does say that they may revise growth forecasts “slightly" higher.
But in terms of policy outlook, this could be the final rate hike for the year by the ECB. Another move in December is still a close call, but is dependent on how Middle East tensions play out as well as how inflation developments progress.
Market pricing is showing ~47 bps of rate hikes priced in by year-end though, including the rate hike that will come next week.
And as Makhlouf mentioned, the move next week is merely just a positioning play. He still doesn’t see policy as being restrictive whatsoever until they get above 2.75%. For some context, the majority of ECB policymakers have mentioned that the neutral territory is seen roughly around 1.75% to 2.25%.
So even with the rate hike next week, policy is only going to be mildly restrictive at best. And in a potentially more heated battle against inflation, that won’t cut it. Hence, the need to ready themselves for further policy tightening down the road.
This article was written by Justin Low at investinglive.com.