Latest news with #BalazsKoranyi
Yahoo
4 days ago
- Business
- Yahoo
ECB policymakers debate risk of inflation going too low
By Balazs Koranyi and Francesco Canepa FRANKFURT (Reuters) -European Central Bank policymakers hailed victory over runaway inflation on Friday even as some warned that it was now at risk of going too low, rekindling memories of anaemic price growth in the pre-pandemic decade. The ECB cut interest rates on Thursday for the eighth time in the past year and signalled at least a pause in policy easing next month since inflation was now safely back at its 2% target after three years of overshooting. Part of the argument for the pause is that economic growth is better than feared, a premise underpinned by fresh data showing the euro zone economy grew by 0.6% in the first quarter, above the 0.3% estimated earlier, and retail sales were also robust. However, the strong growth figure is an anomaly, many economists say. It was driven by frontloaded exports to the United States before tariffs kicked in and data was especially distorted by Ireland, where growth is fuelled largely by activity among big foreign companies based there for tax reasons. Portuguese policymaker Mario Centeno, who has long warned about the risk of price growth going too low, said his colleagues should be alert inflation dipping too far below 2%. "The inflation rate (in the euro zone) is currently below 2% and this downward trend will worsen until the beginning of next year, when it will approach the dangerous level of 1%, or slightly above that," he said in Lisbon. "This is a scenario that should alert us," he said. Finland's Olli Rehn said there was a particular risk from the escalation of the trade war with the U.S. and the outlook was so complex, the ECB's adverse scenario could not take into account all outcomes. "For example, serious disruptions to supply chains and disruptions in financial markets have been excluded from the analysis," Rehn said in a blog post. Part of the reason inflation could go lower is that Germany, the bloc's biggest economy, will stagnate this year, marking the third year of zero or negative growth as its long-predicted recovery keeps getting pushed further and further out. While Germany's new government plans to sharply increase fiscal spending on defence and infrastructure, this will not significantly boost growth until the end of 2027, the Bundesbank said as it cut growth projections for this year and next. "Concerns about a persistent undershoot may soon resurface, especially if trade tensions escalate, weighing on demand," Oxford Economics said in a note. Others took a more benign view that was more in line with the ECB's view that inflation will rebound and hit the bank's 2% target. "The ECB's 2% inflation target has essentially been achieved," Estonian policymaker Madis Müller said. "The expected economic growth in the next couple of years is also likely to be quite moderate, which means that there is no reason to worry too much about price pressure related to the heating up of the economic environment." Latvia's Martins Kazaks said he was also comfortable with the outlook and made the case for the ECB to take a break in cutting rates, partly to preserve policy space and to await fresh data. "I don't think the market should expect the trajectory of cutting rates at every meeting to continue," he told Reuters. "There is no need and there is value in maintaining policy space."
Yahoo
5 days ago
- Business
- Yahoo
ECB governors see July pause but Sept up in the air
FRANKFURT (Reuters) -A clear majority of European Central Bank policymakers meeting on Thursday expressed a preference for holding interest rates steady next month and a few even made the case for an even longer pause, four sources told Reuters. The ECB cut interest rates for the eighth time in a year on Thursday but hinted at a pause in its year-long easing cycle after inflation finally returned to its 2% target. ECB policymakers did not explicitly discuss their July decision but their deliberations revealed a clear preference for no change then since little new information would come out in the next six weeks and interest rates were already low enough to support the economy, the sources said. An ECB spokesperson declined to comment. While some policymakers argued for a longer pause, most preferred not to discuss meetings beyond July, arguing that new economic projections in September would be crucial. Some also argued that any meaningful fall in inflation below 2% in the coming months could justify a further cut in borrowing costs. All policymakers apart from Austrian governor Robert Holzmann backed Thursday's rate cut. (Reporting By Balazs Koranyi and Francesco Canepa; Editing by Hugh Lawson) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Zawya
15-05-2025
- Business
- Zawya
Trade tensions, debt, market volatility are key risks for euro zone, ECB says
Trade tensions, financial market volatility and debt sustainability are the three key risks facing the euro zone economy, ECB Vice President Luis de Guindos said on Thursday, previewing the bank's upcoming report on financial stability. "The risks to growth resulting from trade tensions, combined with higher defence spending, may limit the fiscal space available to shield the economy from adverse shocks, address structural challenges associated with climate change, digitalisation and low productivity, and manage the economic implications of ageing populations," de Guindos said. (Reporting by Balazs Koranyi; Editing by Alex Richardson)
Yahoo
13-05-2025
- Business
- Yahoo
ECB to stand by past stimulus policies in strategy review
By Francesco Canepa and Balazs Koranyi FRANKFURT (Reuters) -The European Central Bank will stand by its aggressive stimulus policy of the last decade in a strategy review, side-stepping calls for self-criticism after a bout of high inflation and sizeable losses, several ECB policymakers told Reuters. The review, which began in March, will address some big questions about the way the ECB works, including whether massive bond purchases, negative interest rates and giving guidance on the future path for rates remain good policy tools. Conversations with ECB policymakers suggest the euro zone's central bank will largely endorse its past largesse, making only minor changes to a strategy document that was last updated four years ago. It will offer little, if any, criticism of steps it took during the sudden surge in inflation seen during 2021-22. In particular, the ECB is likely to keep a reference to the need for "especially forceful or persistent" action - a byword for quantitative easing (QE) bond-buying and other stimulus measures - when inflation and interest rates are at rock bottom, the sources said. They asked not to be named because work on the review is still ongoing. An ECB spokesperson declined to comment. Belgian central bank governor Pierre Wunsch has said the ECB should discuss dropping that clause. His Dutch peer Klaas Knot and German ECB board member Isabel Schnabel have both argued that bond purchases should be used more sparingly in future, arguing that short bursts of QE are effective but lengthy ones become too costly. Policymakers were presented with a preliminary strategy document at a retreat in Porto on May 6-7 and made suggestions for possible changes that will be incorporated in the coming weeks, the sources said. The document is likely to be finalised in early summer. In Porto, ECB staff presented analysis about the effects of the central bank's stimulus policies, concluding that these programmes had been beneficial and should remain part of the ECB's toolbox in the future. There was general agreement, however, that so-called "forward guidance" on interest rates should be used parsimoniously after it led the ECB to react too late to the spike in inflation in 2021-22. The review's preliminary conclusions had left some governors dissatisfied because they were hoping for a more critical retrospective on these policies. The sources nevertheless said the discussion had been collegial, without open rifts, suggesting that the document could be approved by a large consensus. The strategy document is also likely to say that the ECB is operating in an environment of high uncertainty and reaffirm its commitment to a "symmetric" 2% inflation target, meaning that undershoots and overshoots are equally undesirable. By creating large amounts of reserves via bond purchases to avert deflation through a decade of crises, the ECB effectively set up itself and the euro zone's 20 national central banks for losses once inflation and rates rose. The bloc's central banks are currently paying a 2.25% interest rate on some 2.8 trillion euros ($3.11 trillion) worth of bank reserves. While turning a profit is not a central bank's goal, losses deprive governments of dividend income, fuel criticism of it as an institution and risk eventually eroding public confidence. ($1 = 0.8992 euros) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
02-05-2025
- Business
- Yahoo
Euro zone inflation holds steady in April, service prices surge
By Balazs Koranyi FRANKFURT (Reuters) -Euro zone inflation held steady a touch above the ECB's 2% target in April but underlying price pressures picked up more than projected, likely making some ECB policymakers nervous, even if a trade war may justify more interest rate cuts. Inflation in the 20 nations sharing the euro currency held at 2.2%, above expectations for 2.1% in a Reuters poll of economists as the price growth in services and unprocessed foods offset the dip in energy costs. A surge in services prices pushed up underlying or core inflation, which excludes volatile food and energy prices, to 2.7% from 2.4%, above expectations for 2.5%. While ECB policymakers normally place great emphasis on inflation prints - especially the uptick in core prices - the U.S. administration's trade war with the rest of the world may be far important in the run up to the bank's June 5 policy meeting. Still, the big rise in services prices is likely to bolster calls by policy hawks to slow the pace of policy easing before there is decisive evidence that the target is reached. For now, economists see a more than 80% chance of another rate cut in June and see at least one more move before the end of the year, which would take the ECB's deposit rate to 1.75% or lower. Policymakers speaking on and off the record have also started to pave the way for the ECB's eighth rate cut in 13 months as the trade war's will weigh on prices and could even drag inflation below target. Indeed, the bank's communication has already shifted. While the ECB earlier saw inflation back at target only in 2026, policymakers now say that the target has essentially been achieved. This is because trade strife slows economic growth and curbs investment, and it has already pushed down energy prices and strengthened the euro, making imports cheaper. Moreover, many fear that China could start dumping its surplus products on Europe given its limited access to the U.S. While a more fragmented world economy could ultimately increase production costs, this upside risk is seen as rather limited and investors' longer-term inflation expectations are holding firm around the ECB's 2% target. More spending on defence could also boost prices since that is bound to increase budget deficits, but any such spending is still well into the future and may only have a limited impact on prices, economists says. Sign in to access your portfolio
