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IMF urges ECB to keep rates at 2% barring inflation shocks
IMF urges ECB to keep rates at 2% barring inflation shocks

Yahoo

time02-07-2025

  • Business
  • Yahoo

IMF urges ECB to keep rates at 2% barring inflation shocks

-- The International Monetary Fund (IMF) believes the European Central Bank (ECB) should maintain its current 2% deposit rate unless significant shocks alter the inflation outlook, according to Alfred Kammer, head of the IMF's European Department. Speaking on Wednesday at the ECB Forum on Central Banking in Sintra, Portugal, Kammer told Reuters that "risks around euro zone inflation are two-sided." "This is why we think the ECB should stay the course and not move away from a 2% deposit rate unless there is a shock that materially changes the inflation outlook. Right now we don't see anything of such magnitude," Kammer stated. The ECB has reduced rates by two percentage points since June 2024 and has indicated a pause for July, though financial markets still anticipate another cut to 1.75% before the end of the year. The IMF's position differs from market expectations partly due to its higher inflation forecast for next year compared to the ECB's projections. While the ECB expects price growth to fall below its 2% target for 18 months starting from the third quarter, with inflation reaching a low of 1.4% in early 2026, the IMF forecasts inflation at 1.9% for next year. Kammer explained the difference: "For next year, we see inflation at 1.9%, which is above the ECB's own projections, partly because we take a different view on energy prices." Related articles IMF urges ECB to keep rates at 2% barring inflation shocks Tariff rush lifts ASEAN exports, but BofA warns payback looms in H2 Dollar nursing double-digit losses, but bears aren't done yet: MS

Euro zone facing increased inflation volatility, Lagarde says
Euro zone facing increased inflation volatility, Lagarde says

Yahoo

time01-07-2025

  • Business
  • Yahoo

Euro zone facing increased inflation volatility, Lagarde says

SINTRA, Portugal (Reuters) -Uncertainty is bound to remain a key feature of the global economy, likely making inflation more volatile and requiring the ECB to act more forcefully to keep prices around its target, ECB President Christine Lagarde said on Monday. The ECB unveiled an updated strategy on Monday and concluded that major deviations from its target in either direction would require "appropriately forceful or persistent" policy action to ensure price growth comes back to 2%. Explaining this conclusion, Lagarde argued that the global environment had changed fundamentally in the post-pandemic years, as firms changed prices more quickly in this new period of uncertainty and supply shocks. "The world ahead is more uncertain – and that uncertainty is likely to make inflation more volatile," Lagarde told the ECB Forum on Central Banking in Sintra, Portugal. Inflation in the euro zone is now around 2%, right on the bank's target, after a decade of first undershooting this figure despite massive stimulus, then overshooting it. While the ECB sees inflation staying around these levels over the next several years, Lagarde admitted there were risks as corporate pricing behaviour has changed. "Firms tend to react more quickly to shocks – especially supply ones – in order to protect against potential future losses," Lagarde said in a speech. "They are more likely to adopt more flexible pricing strategies, which means prices may respond not just to major shocks, but also to smaller frictions and local disruptions." Another problem was that pricing adjustment may not be linear, meaning that inflation could quickly accelerate or slow. The way to tackle such risks, Lagarde argued, was by acting forcefully early, including tightening policy quickly to prevent a feedback loop between prices and wages. Similarly, early action against too-low inflation would minimise the time the ECB would have to spend at ultra-low interest rates. 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

ECB's Kazaks sets 10% pain threshold for tariffs and the euro
ECB's Kazaks sets 10% pain threshold for tariffs and the euro

Reuters

time01-07-2025

  • Business
  • Reuters

ECB's Kazaks sets 10% pain threshold for tariffs and the euro

SINTRA, Portugal, June 30 (Reuters) - A 10% U.S. tariff on European goods, combined with a similar or greater appreciation of the euro against the dollar, would significantly impact euro zone exports, European Central Bank policymaker Martins Kazaks said on Monday. As trade negotiations between the U.S. and the EU remain uncertain, economists are speculating about the conditions that might prompt the ECB to intervene with further interest rate cuts to support the euro zone economy. Kazaks said euro zone imports would already be affected by a 10% U.S. duty - the baseline to which EU officials have resigned themselves - and a 10% or greater rise in the euro's exchange rate against the dollar, which would be just 1% more than what it has gained since Liberation Day. Higher tariffs abroad and a stronger currency make a region's exports more expensive. "If there is a 10% tariff plus a 10%-plus euro appreciation of the exchange rate, this is large enough to affect export dynamics," he told Reuters at the ECB's annual forum on Central Banking in Sintra, Portugal. The euro was trading at $1.178 on Tuesday, up 13.8% since the start of the year and 8.9% since the beginning of April. Kazaks described the euro zone economy as "weak", although still showing "some growth", adding that inflation was "more or less" at the central bank's 2% target, implying little need for major policy changes. The ECB's latest baseline projection showed inflation at the ECB's 2.0% target this year, before dipping to 1.6% the next and returning to 2.0% in 2027. "The majority of the rate adjustment has been done," Kazaks said, repeating his previous position. "If there are further cuts, they will be small and have signalling value, provided that we remain in the baseline." He also warned that China "was starting to dump goods on Europe", which would both push down inflation and undermine European competitiveness.

Euro zone facing increased inflation volatility, Lagarde says
Euro zone facing increased inflation volatility, Lagarde says

Reuters

time30-06-2025

  • Business
  • Reuters

Euro zone facing increased inflation volatility, Lagarde says

SINTRA, Portugal, June 30 (Reuters) - Uncertainty is bound to remain a key feature of the global economy, likely making inflation more volatile and requiring the ECB to act more forcefully to keep prices around its target, ECB President Christine Lagarde said on Monday. The ECB unveiled an updated strategy on Monday and concluded that major deviations from its target in either direction would require "appropriately forceful or persistent" policy action to ensure price growth comes back to 2%. Explaining this conclusion, Lagarde argued that the global environment had changed fundamentally in the post-pandemic years, as firms changed prices more quickly in this new period of uncertainty and supply shocks. "The world ahead is more uncertain – and that uncertainty is likely to make inflation more volatile," Lagarde told the ECB Forum on Central Banking in Sintra, Portugal. Inflation in the euro zone is now around 2%, right on the bank's target, after a decade of first undershooting this figure despite massive stimulus, then overshooting it. While the ECB sees inflation staying around these levels over the next several years, Lagarde admitted there were risks as corporate pricing behaviour has changed. "Firms tend to react more quickly to shocks – especially supply ones – in order to protect against potential future losses," Lagarde said in a speech. "They are more likely to adopt more flexible pricing strategies, which means prices may respond not just to major shocks, but also to smaller frictions and local disruptions." Another problem was that pricing adjustment may not be linear, meaning that inflation could quickly accelerate or slow. The way to tackle such risks, Lagarde argued, was by acting forcefully early, including tightening policy quickly to prevent a feedback loop between prices and wages. Similarly, early action against too-low inflation would minimise the time the ECB would have to spend at ultra-low interest rates.

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