The minutes of the latest monetary policy meeting of the governing council of the European Central Bank (ECB) reveal its more conservative side. The document, published this Thursday, shows that the debate on lowering interest rates remains marked by caution. “It is too early to declare victory over inflation,” he concludes the discussions between the governors of the central banks of the euro zone and the executive committee of the ECB, chaired by Christine Lagarde.
The document indicates that all members of the institution’s board of directors approved the reduction in interest rates on September 12, by 0.25 points to 3.5% for the main reference. This is the second decline, after June, in this round of relaxation of financing conditions, which were automatically transferred to Euribor and, therefore, to the cost of mortgages and loans in general.
The beginning of the end of monetary austerity responds to the moderation of inflation and the slowdown in economic growth throughout the euro zone, particularly in Germany. The threat of stagnation in activity, or even a recession, weighs on the ECB. But it is a risk that the organization has assumed in its aggressive fight against rising prices, which has consisted precisely in stifling the purchasing capacity of families and the investment capacity of businesses to curb demand and thus moderate inflation.
However, the minutes of the institution’s latest board meeting clearly state that “members remain committed to ensuring that inflation returns to the 2% medium-term objective in a timely manner and to maintaining official interest rates sufficiently restrictive for all that. as long as necessary to achieve this objective.
“They will also continue to apply a data-driven approach, meeting by meeting, to determine the appropriate level and duration of restrictions,” the document continues. By “tightness,” monetary jargon refers to financing conditions that harm demand.
“There should be no prior commitment to a particular tariff trajectory. Therefore, it is preferable to maintain full optionality in the coming period in order to have the freedom to respond to all data received,” the ECB minutes explain.
At the end of September, sources from the institution’s board of directors explained to elDiario.es that the most likely roadmap envisages a drop in interest rates by 0.25 points each quarter until they remain to 2.5% in the fall of 2025.
With this plan, the ECB Governing Council hopes that inflation will stabilize at the theoretical target of 2% within a year and is confident that the euro zone will avoid recession. In this “central scenario”, the main body that decides the monetary policy of the “common currency” countries is divided in two regarding the main risks that currently exist. Part of the Governing Council is concerned about the weakness of economic growth, particularly in Germany. The other, the more orthodox, is due to the “rigidity” of inflation in services.
Price increases have already moderated to 1.8% across the euro zone in September, at an inter-annual rate. And 1.5% in Spain. In other words, inflation is below the ECB’s theoretical target. At the same time, weak economic activity in some countries, including Germany and France, is evident. Especially, in the industrial sector.
Spain, an exception
Our country constitutes a notable exception at the macroeconomic level due to the “pull” of tourism, the strength of the rest of the foreign sector and the structural change in the labor market, with historic job creation. But it is precisely access to housing, due to rising prices, which constitutes the main problem for families, especially for the most vulnerable and in capitals and tourist areas, where work is concentrated.
“Spain is one of the countries where the rise in rates weighs the most. Households pay higher interest due to the prevalence of variable rate mortgages and have a lower interest rate. [de los depósitos]. In Germany and France, it is households that actually benefit from this increase,” explained Ángel Talavera, chief economist for Europe at Oxford Economics, a few days ago.
On the other hand, the overall weakness of the German and French economies currently poses the biggest threat to part of the ECB Governing Council. From this perspective, the danger is that the aggressiveness of rate hikes has gone too far and that inflation will fall below 2% within a year or more. In this scenario, the main fear would be deflation, a “monster” which could be even more impoverishing than inflation because it is linked to a recession and job destruction.
