ECB staff see lower rate peak than market

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Brasil Notícia Notícia

European Central Bank staff see the need for fewer rate hikes than markets now estimate to tame inflation, according to a new internal model that could serve as a key input in future deliberations, four sources close to the discussion said.

The new model, called Target-Consistent Terminal Rate, showed the ECB needed to raise its deposit rate to 2.25% - or even less than that if at the same time it shrinks its balance sheet - to bring inflation back to its 2% goal

The rate is then seen rising again in December, possibly to 2%, taking it to the"neutral" territory which neither stimulates nor slows growth. And staff said this rate peak would be even lower if the ECB hoovered up some excess liquidity from the financial system - a reduction in its balance sheet often called quantitative tightening - the sources added.

Policymakers' key objection was that staff models have fared poorly in recent years so there was little confidence in an indicator that was so far below current market pricing, the sources said.

 

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