Frankfurt (Reuters) – The European Central Bank (ECB) could still be at several interest rate reductions in the “neutral” level, the rate that does not restrict or stimulates economic growth, according to a note published by the institution .
The “neutral” level of the deposit rate is currently between 1.75% and 2.25%, said BCE in its economic bulletin, a range below 1.75% to 2.5% given by the President Christine Lagarde In December, an estimate likely to fuel speculations on new rate drops in Europe, taking into account the weakness of the economic growth of the block.
The gloom of the European economy should weigh prices and allow the ECB to return to its target of 2% inflation after having exceeded it for four years.
The ECB, however, tried to minimize the importance of this new estimate, arguing that it was not useful to define its monetary policy, since the neutral level could not be measured with precision and that the models included a “degree very high “of uncertainty.
“The inherent uncertainties as well as conceptual gaps limit the usefulness of the natural rate estimates available for the conduct of monetary policy in real time,” said the institution based in Frankfurt.
The neutral rate has been the subject of particular attention in recent months, after several officials have declared that it would be the next objective and that the ECB has deleted a reference to the maintenance of a “sufficiently restrictive” policy.
According to the new estimate, the BCE deposit rate, currently 2.75%, should be reduced twice before reaching the top of the estimated range.
This scenario is already anticipated by the markets, while investors predict three or four new rate decreases this year, Frankfurt is increasingly concerned with anemic growth in the euro zone.
The BCE’s note also claims that this neutral level has not changed significantly since the Cavid-19 pandemic, despite certain contrary estimates.
While some officials have suggested their own forks for the neutral rate, others, in particular within the BCE Governors’ Council, have minimized the importance of these figures.
(Written by Balazs Koranyi; Diana Mandia; edited by Augustin Turpin)
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