Central bank week: The ECB is likely to raise interest rates sharply on Thursday

Several major central banks are facing a decision this week on how to proceed with monetary policy: the American Federal Reserve (Fed) on Wednesday and the European Central Bank (ECB) and the Bank of England on Thursday.

Christian Siedenbiedel

Editor in Business.

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While the Fed has so far raised interest rates earlier and more than the ECB, it is likely to take the smaller interest rate step this week: 0.25 percentage points are expected - while the ECB and the bank are assuming a rate hike of 0.5 percentage points of England could take a step at that height.

"We think the ECB has no choice but to hike rates by 50 basis points," said Frederik Ducrozet, an economist at Bank Pictet.

ECB President Christine Lagarde recently said quite clearly at the start of the year at Deutsche Börse that interest rates must continue to rise.

Bundesbank President Joachim Nagel made a similar statement.

However, there had also been voices from the Governing Council that sounded somewhat more reserved.

"In December, the ECB reduced the rate of interest rate hikes from 75 basis points to 50 basis points, but provided this decision with the important note that significant interest rate hikes are also to be expected at the upcoming meetings," said Marco Wagner, ECB specialist at Commerzbank.

It will therefore also be important for the ECB on Thursday to give forward guidance for the coming meetings, i.e. an outlook.

In fact, meanwhile nine members of the Governing Council of the ECB - five of whom he counts among the deaf, which are the advocates of a rather loose monetary policy - have spoken out in favor of a rate hike by 50 basis points at the March meeting, too.

Jari Stehn, chief European economist at the investment bank Goldman Sachs, is now predicting that the ECB will raise interest rates by 0.5 percentage points in February and March – as well as a last interest rate hike in May by 0.25 percentage points.

ECB likely to “verbally overtake the Fed”

However, how far the ECB can and must raise interest rates overall in this cycle is controversial.

Some interest rate cuts for the second half of the year have already been priced in on the financial markets.

However, ECB President Lagarde distanced herself from this expectation at the World Economic Forum in Davos.

On the other hand, there are also financial market participants who expect significantly higher interest rates.

The fund company Ethenea writes in a comment that raising the ECB deposit rate from 2 to 3 percent will not be enough: "4, 5 or even 6 percent should be the goal, accompanied by a timely reduction in the ECB's bond holdings". , says fund manager Volker Schmidt.

The deposit interest rate of the ECB is now 2 percent, the so-called main refinancing rate is 2.5 percent and the top refinancing rate is 2.75 percent.

In any case, the ECB will overtake the Fed this week and present itself as the central bank currently fighting inflation the most, said Karsten Junius, economist at Bank J. Safra Sarasin.

This also applies to the language: "The ECB is still in the middle of the inflationary war, while the Fed can slowly prepare a ceasefire."

The Fed is likely to emphasize the already high key interest rate level more than the ECB, while the ECB will not rule out further interest rate hikes of 50 basis points.

However, both central banks are unlikely to be happy that interest rate cuts are already being priced in on the financial markets, Junius believes.

The current collective bargaining conflicts in Germany show that the danger of second-round effects of inflation is anything but averted.

Fiscal policy in the euro area also poses a risk of inflation.

Publication of the German inflation rate postponed

In December, the inflation rate was 8.6 percent in Germany and 9.2 percent in the euro area.

The expected slightly higher German rate for January should actually be presented on Tuesday.

However, the Federal Statistical Office has postponed the announcement until next week - the authority justified this with technical difficulties in data processing.

On the other hand, the European statistics authority Eurostat said on request that the planned publication date of eurozone inflation on Wednesday would be adhered to - and then work with an estimate for Germany.

The ECB wants to specify its plans to reduce its bond holdings on Thursday.

In total, securities were bought for almost 5 trillion euros.

From March onwards, part of the money from maturing bonds from the older APP bond purchase program is no longer to be fully invested in new ones.

Economist Ducrozet said he expects the ECB to increase the pace of this "quantitative tightening" (QT) in the second half of the year.

For consumers, the turnaround in interest rates last year brought significantly higher interest rates on loans and slightly higher interest rates on savings.

The credit broker Interhyp is now expecting fluctuations and interest rates of between 3 and 4 percent for building loans with a ten-year fixed interest rate.

The first banks are now offering around 2 percent interest per year for call money.

Horst Biallo from the consumer platform of the same name expects the ECB interest rate hikes in February and March to give overnight interest rates another "boost": "We expect to see a peak of three before the decimal point for overnight money by spring."