ING mener, der er gode grunde til, at ECB slår til med en hurtig rentestigning allerede i næste uge, men tror, det skyldes, at ECB vil fastholde sin troværdighed, fordi ECB tidligere har udtrykt, at første skridt til en stramning af pengepolitikken er at standse sit opkøbsprogram, og derefter kommer der så rentestigninger, hvoraf den første ventes i juli. Men da ECB konstant har undervurderet inflationsudviklingen i flere måneder, mener ING, at den bør stramme skruen allerede nu. ING vil ikke blive overrasket, hvis der kommer en mere høgeagtig reaktion i næste uge, eller at renten sættes i vejret med 50 basispunkter i juli. Banken hæfter sig også ved, at ECB-chefen Christine og ECBs cheføkonom, Philip Lane, har brudt alle traditioner ved forud for et møde i ECB at fortælle om ventede skridt flere måneder forud.
ECB stuck in sequencing
Fresh round of staff projections
The economic backdrop for next week’s meeting is also clear: the eurozone economy has not (yet) fallen off a cliff but is looking into a very fragile and uncertain future. Stagnation and even a recession are still on the cards. Even if business sentiment indicators have been holding up surprisingly well, weak expectations, consumer confidence at record lows, and high energy and commodity prices do not really bode well for the eurozone’s economic outlook.
The latest EU decision to (partially) ban imports of Russian oil will also weigh on the outlook, even though it has come too late to be incorporated into the ECB’s latest round of staff forecasts. Regarding these forecasts, we expect another upward revision of the inflation forecasts for 2022 and 2023 (5.1% and 2.2% respectively in the March projections). The most interesting forecasts will be the inflation forecasts for 2024. In March, the ECB expected inflation to come in at 1.9% in 2024. Anything higher than that will be welcome arguments for not only normalising monetary policy but going far beyond that.
Regarding growth, we expect ECB staff to revise downwards its projections for 2022 and 2023 (3.7% and 2.8% respectively). Higher interest rates since the March meeting, higher oil prices, and more uncertainty make it hard not to revise growth downward.
Since last December, the ECB has made an enormous u-turn in its reaction to structurally increasing inflation. It has not only been high inflation but also the fact that the ECB has structurally underestimated inflation dynamics, which has given the hawks at the ECB the upper hand. This underestimation of inflation dynamics is not over yet.
In March, ECB staff had expected inflation to come in at 5.6% year-on-year in the second quarter of 2022. The April and May numbers came in at an average of 7.8%. No need to say more. Back in the good old days, the ECB was actually a bad predictor of future inflation. Remember that back then, the ECB often projected inflation to pick up over the medium term, which it never did. The price of permanently overestimating inflation dynamics was ‘lower for longer’. Now, the price for permanently underestimating inflation dynamics will be normalising monetary policy quickly.
Why not hike rates next week?
With the permanent underestimation of inflation dynamics, headline and core inflation still on the rise, and 2024 inflation very close to the ECB’s definition of price stability, the only real question is why not hike interest rates next week.
In fact, since the start of the year, ECB meetings and press conferences have always surprised to the hawkish side. At the current juncture and given the latest comments, the only way to surprise to the hawkish side once again would be to actually hike rates next week. And in all honesty, the case for such a move is very clear.
The only argument against not hiking is the ECB’s own ‘sequencing’, ie first, stop net asset purchases before hiking rates. A rate hike next week would undermine the ECB’s credibility and forward guidance. The only reason for not hiking rates next week is because of the ECB maintaining its own reputation or better the choice between keeping up the belief in reliable forward guidance and the credibility as a ruthless inflation fighter.
A rate hike next week is still close to impossible, but we cannot rule out another hawkish surprise. Following the logic of the ECB, this hawkish surprise would be to weaken Lane and Lagarde’s de facto pre-commitment and keep a 50bp rate hike on the table for July.
