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Central Bankers hedge on the future for interest rates

Little public agreement among ECB policymakers on when to halt rate hikes

ECB president Christine Lagarde is giving away little on where interest rates will go. Photograph: Alex Kraus/Bloomberg

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Thu Jun 29 2023 - 05:00

The great and the good of central banking have assembled in Sintra outside Lisbon in Portugal this week, for the European Central Bank’s annual jamboree discussing monetary policy.

The ECB Forum on Central Banking is a red-letter event for central bank watchers at the best of times, but it is even more important this year given where we are in the battle against inflation. Two years ago there was a general consensus that spiking prices were temporary, or transitory to use the preferred term. Last year interest rate rises had started and it was clearly going to be a long road ahead.

Now, though, those increases are nearing an end (unless you’re in the UK), and it is clear there is little agreement at the ECB as regards when the end will come.

In the past week we have seen ECB policymakers Mario Centeno of Portugal and chief economist Philip Lane make dovish comments, especially around whether to increase rates in September. We have also seen ECB president Christine Lagarde tell the conference rates won’t peak anytime soon, while Belgium’s Pierre Wunsch warned the bank needs a “clear” sign core inflation is easing to pause rate hikes. And meanwhile ECB board member Luis de Guindos said the September decision is “open”.

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Clear as mud.

While the ECB will almost certainly hike rates in July, September is already being built up to being a key moment. The doves on the bank’s governing council may worry about clear signs of economic slowdown in Europe. The hawks may point to the UK where inflation remains effectively out of control and the Bank of England is being pilloried locally for mishandling monetary policy.

No doubt there will be a lot of robust conversations over the summer in Frankfurt and elsewhere. At this stage it’s anyone’s guess how the ECB will jump in September. Lane said this week that September is too far away to make a decision. For hard-pressed mortgage holders who need certainty around their repayments though, September is not far away at all.

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