How high the European Central Bank pushes interest rates will become a lot more apparent when new economic projections arrive next month, according to Governing Council member Mario Centeno.
(Bloomberg) — How high the European Central Bank pushes interest rates will become a lot more apparent when new economic projections arrive next month, according to Governing Council member Mario Centeno.
With inflation already moderating more quickly than anticipated, the new quarterly outlook is likely to signal slower price growth, the Portuguese central bank head said Monday. The figures will be “very important” in determining the path of monetary policy, specifically the peak in borrowing costs, he said.
“For sure we’re much closer to that terminal rate than before,” Centeno told Bloomberg TV. “We are approaching it and I think March will be a great moment for us to be very clear about it.”
While record euro-zone inflation is retreating, the ECB intends to deliver another 50 basis-point increase in rates at next month’s meeting. The concern among officials is underlying price pressures, which are being driven by rising salaries and aren’t moderating so far.
That could yet lead to more big hikes beyond next month, with some of the Governing Council’s more hawkish members already signaling that such moves may be needed.
Latvia’s Martins Kazaks last week described inflation risks as “still tilted on the upside,” telling Bloomberg that rates will have to be pushed “significantly into restrictive territory.” Bundesbank chief Joachim Nagel said “more significant rate increases will be needed.”
The ECB lifted its deposit rate by a half-point to 2.5% in February, though inflation remains closer to double digits than its 2% goal. The European Commission reckons price gains will remain at 2.5% in 2024, according to an updated outlook published Monday. Inflation will still be just above the target in 2025, a Bloomberg poll of economists showed.
For the ECB to moderate the pace of rate increases, “we really need to see inflation converging to 2% in the medium term,” Centeno said. “The new forecasts are going to tell us exactly where we are in that process.”
Speaking later Monday at the London School of Economics, he stressed that the picture regarding prices is improving.
“Given what was in the outlook in December, risks now are at least much more balanced and I don’t see upside risks to inflation,” the Portuguese official said. “There’s a big ‘if’ here, which is if no further shocks occur.”
–With assistance from Tom Mackenzie.
(Updates with more from Centeno in last two paragraphs.)
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