Report
Will the ECB wait for inflation to return before raising its interest rates?
In principle, the ECB will conduct a very expansionary monetary policy as long as euro-zone (core) inflation is not close to 2% (there is some uncertainty as to what “ close †means since the ECB could reword its inflation target). In the short term, the weakening of the euro-zone economy (industrial crisis and then the coronavirus crisis) will obviously prevent an ECB rate hike. But the key question is: even before inflation has returned to the vicinity of the inflation target, will not the ECB be forced to react to: The real estate bubble; The abnormal squeezing of risk premia; The life insurance crisis and investors’ excessive switch to illiquid assets; The capital outflows from the euro zone? This reaction would obviously have to be weak so as not to trigger another public debt crisis.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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