Sat, Jun 10, 2023 @ 05:30 GMT
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ECB Lane: Markets expect rates to remain at elevated levels for an extended period

ECB Chief Economist Philip Lane noted in a speech that “since the cut-off date for the March 2023 projections, the incoming data have been mixed.”

Lane pointed out the ongoing divergence in sectoral performance, as services business activity experiences accelerated expansion due to strong reopening effects and increased incomes. In contrast, manufacturing output remained stagnant in the first quarter. He also indicated that the consistent improvement in business and consumer sentiment, despite remaining at low levels, appears to have reached a plateau.

Lane mentioned that market pricing and the ECB’s Survey of Monetary Analysts (SMA) foresee that the “policy rate will rise further in the near term and will remain at elevated levels for an extended period.”

He explained that once inflation stabilizes at the 2% target in the medium term, it is projected that the policy rate will settle around 2% instead of returning to ultra-low levels. This expectation is primarily driven by the re-anchoring of long-term inflation expectations at the ECB’s 2% target, indicating that market participants and monetary analysts anticipate the longer-term equilibrium real rate to hover around zero per cent.

Full speech of ECB Lane here.

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