President Lagarde was asked if she would lower interest rates (the highest in the last ten years). She said that at no time did the executive committee consider lowering them. She announced that the rate for refinancing operations, the rate for marginal operations and the remuneration of surplus liquidity that commercial banks deposit with the ECB would remain unchanged. That is, the rates of 4.5% for the former remain unchanged; 4.75% for marginal operations and 4% for deposits. As the banks that borrowed from the ECB pay off their debt, its executive committee will be in a position to evaluate the impact of these operations on its monetary policy, but there will be no new loans. What’s more, the pandemic bonds (PEPP) when they come to maturity will not be reinvested. And not only that. Every month 7.5 billion euros will be withdrawn from the market. At the end of 2024 they will be extinct.
Lagarde seems more optimistic about interest rates than about the size of the ECB’s balance sheet. What he seeks is for inflation to drop to the bank’s objective, 2% annually and price stability. The ECB expects inflation to gradually decline over the next year. Overall, the ECB’s statistical services have estimated average inflation of 5.4% in 2023, 2.7% in 2024 and 1.9% for 2025 and 2026. Pressures on domestic prices continue being high, in the first place, due to the strong growth in the unit costs of salaries. Core inflation expectations, excluding energy and fresh food, may be 5% in 2023 and 2.7% for 2025 and 2026.
As on other occasions, the ECB considers that company margins can contribute to these increases. And productivity? The ECB considers that the economy will tend to improve as real income increases thanks to the improvement process that people will enjoy due to the fall in inflation, the increase in salaries and the improvement in external demand. Consequently, the Eurosystem forecasts growth from the average of 0.6% for 2023, 0.8% for 2024 and 1.5% for 2025 and 2026. Data from November 23 showed that the Domestic inflation was due to rising wages and business margins. The ECB’s measures are not going to lead us to a recession, but rather to price stability and sustained growth. We expected a lower Euribor for mortgages, but it will not be possible if in the banks’ wholesale market the supply of funds does not cause a decrease in the Euribor, something that some indications have been pointing to. To conclude, expensive money and reduction of the ECB’s balance sheet. Nothing good for mortgages and the stock market.
