The European Central Bank is not expected to commit to any specific rate hike beyond February, especially as there is cause for cautious optimism about inflation, ECB Governing Council member Fabio Panetta said in an interview with the German newspaper Handelsblatt, 24 January (published on the ECB website). “There is too much uncertainty in the economy to commit preemptively and unconditionally on any specific line,” said Panetta. “Beyond February any guidance that is unconditional, i.e. unrelated to the economic outlook, will deviate from our data-driven approach.”
Panetta stated that decisions must be based on the evolution of inflation, wages, energy prices, developments in the war in Ukraine, the global economy and that of the Eurozone: «Will there be a recession? ».
“Our December projections – he explained – envisaged inflation above our 2% target until mid-2025. It was reasonable to raise rates in December and signal a similar step in February”. In March there will be new projections “and we should reassess the situation”.
Hawks and doves
The ECB essentially committed to raising its key rate by half a percentage point on 2 February to 2.5%, but different orientations are emerging for March, suggesting that the debate is open, despite the indication for significant tightening monetary policy at a steady pace. Some board members, including the Dutch and Slovakian central bank governors, specifically called for a 50 basis point hike in March. Others, including the governors of the Greek and Italian central banks, prefer more caution and gradualness.
Having reaffirmed the commitment to «do everything necessary to reduce inflation to 2% without undue delay, at the minimum cost to the economy», according to Panetta, «a public and detailed discussion of the actual political measures, on the basis points, would be inappropriate. This discussion should take place within the Governing Council of the ECB.