ECB to raise rates again — but the real focus is on what Lagarde says

FRANKFURT – The European Central Bank is almost certain to hike interest rates by half a percentage point on Thursday, but muddled communication leaves big questions about how much more economic pain the ECB will bear in its fight against inflation.

So instead of focusing on February growth, governments and investors are already looking ahead to whether ECB President Christine Lagarde doubles down on previous indications for a half-percentage hike in March and anticipates any additional tightening in the future. What words does she use to describe it?

The latest inflation and growth projections will be available in time for the next ECB meeting in mid-March and are expected to show a much sharper decline in price growth than the December forecasts.

It would strengthen the case made by policymakers who call for more moderate growth and who caution against causing unnecessary pain to the eurozone economy.

ecb policy advice Talked of another 50-basis-point rate hike at our next meeting in December [February] and maybe one after that [March],

But that was soon called into question faster than expected decline Headline inflation has been linked with a media report saying that the slower tightening in March was gaining support among central bank policymakers.

Barclays economist Silvia Ardagna said the pace of tightening could slow in March. “There could be a divergence of views at the February 2 meeting, which could intensify ahead of the March meeting, when ECB staff will produce a new set of macroeconomic forecasts,” he added.

Despite all this, most analysts believe Lagarde will signal growth of another half a percentage point for March.

Headline inflation remains significantly above the 2 per cent target and core inflation, which strips out volatile factors such as energy and food, which are considered to be frontrunners for the inflation trend, may not yet peak Is. Furthermore, technical problems at Germany’s statistics office mean that inflation figures are less reliable and any change less likely.

And in a further argument that the sector can handle a rate hike, the economy has proved more resilient than feared, with preliminary Eurostat data on Tuesday showed The sector grew by 0.1 per cent in the last quarter, defying expectations of contraction.

The Hawks are pressing hard on the Governing Council that the battle with inflation has not been won. Perhaps more importantly, the pigeons’ nudge has been largely silent. Gabriel Makhlouf, also seen as a practical pigeon came out in favor of another big move in March.

Abandoning previous guidance without changes to the data risks hurting Lagarde’s credibility at a time when it is already hurt.

She finds herself in a tight spot as she has already promised a half-cent hike for February, while insisting that decisions are taken meeting-by-meeting and hinged on incoming data. and has taken a similar step for March.

While Holger Schmieding, economist at Berenberg Economics, said he expects the ECB to confirm that it is moving at a “steady pace” and will therefore raise rates by half a percentage point in March, he added that Dove is still on the official side on rates. Softening the language can leave an impression. To move forward “significantly”.

“While it is quite possible that the ECB will change the wording, we consider it more likely that the bank will not materially change this sentence yet,” he said.

Experts expect the ECB to raise rates to somewhere between 3.25 per cent and 3.75 per cent from the current 2 per cent.

Whatever the central bank has in mind, it should work on its “suboptimal” communication, said ING economist Carsten Brzeski. “It would help if the ECB clarified its response function and sent a message that has a longer shelf life than a few days,” he said.