Ewald Nowotny, a member of the European Central Bank (ECB)’s Governing Council and governor of the Central Bank of Austria flagged this week that the ECB should begin to normalise its monetary policy.
The Austrian said he was comfortable with the possibility of an increase in the deposit rate, from -0.4% to -0.2%, “as a first step” before any change in the official interest rate. It’s the first time, since interest rates have been at a record low of 0%, that a member of the ECB has talked so clearly about a rise.
This ECB’s movement would be key and essential to recover a true normalised banking system since European banks still kept 690, 384 million euros in the ECB at April 6. Of that amount, 5,650 millions euros belong to Spanish financial entities.
A course of action which would almost fit in with that predicted by Intermoney, since the analysts are forecasting that the deposit rate would rise to -0.25% in a first instance, with the aim of leaving room for later moves of 25 bp.
“A fact which would allow the symmetry in the differential between the official rate and the credit and deposit facility to be maintained.”
Last month, at an event organised by the Austrian Central Bank, the Bundesbank president Jens Weidmann already defended his prediction that the top European monetary regulator would raise the price of money next year. “The markets are forecasting an initial rise in rates by approximately mid-2019, which undoubtedly is not completely unrealistic,” he said.
Weidmann is one of the strongest candidates to substitute Mario Draghi in October 2019, and his reputation for being conservative and not very flexible is a concern for part of the ECB in its defence to Berlin, over and above the totality of its members.
Weidmann highlighted that the ECB’s stimulus programme should be completed, via the purchase of public and private debt, without that creating confusion or being rejected in the markets.