ECB to keep monetary policy highly expansionary if forecast inflation remains below 2% – Natixis
|It is reasonable to think that inflation in the eurozone will fall back below the ECB’s 2% target from mid-2022. This is also what the European Central Bank (ECB) expects. According to analysts at Natixis, as long as inflation is not a real threat in the eurozone, the ECB will keep its monetary policy highly expansionary.
The importance of the inflation forecast for 2023
“The ECB has many objectives: Help ensure public debt sustainability; Boost private and public investment, especially in the energy transition; Reduce structural unemployment. These objectives can be pursued as long as expected inflation remains below 2%. As is the case today, the ECB will continue to buy bonds without raising its key interest rates.”
“If expected inflation rose persistently and significantly above 2% (the ECB can tolerate inflation temporarily slightly higher than 2%, such as 2.5%, but not permanently), the ECB would likely do a policy about-turn and, like the Federal Reserve, exit quantitative easing and start planning interest rate hikes.”
“Inflation is forecast to be lower than 2% in 2023. But it is important to watch out for any shock that could push up inflation in 2023: Social crisis and demands leading to faster wage growth, bearing in mind that wage earners’ purchasing power has fallen in 2021; Geopolitical crisis, for example between Europe and Russia, leading to a further sharp rise in European natural gas prices; A flare-up of the health crisis, causing bottlenecks to reappear, particularly in transport.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.