the delicate question of stopping the rise in interest rates

2023-08-19 07:00:00

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CHRONIC. If headline inflation is still 4.5% at the end of 2023 and 4% at the end of 2024, the Central Bank will have to act.

By Patrick Artus

A field in Munwiller (Haut-Rhin), June 26, 2023. TheAgricultural commodity prices are likely to stabilize at a high level in 2023 and 2024.
© Sebastien Bozon/AFP

Published on 08/19/2023 at 09:00

It seems increasingly likely that the ECB will soon stop raising interest rates. The “terminal rate” will probably be 4% (for the bank deposit rate at the ECB) and 4.5% (for the rate of repos – bank refinancing by the ECB).

The ECB is concerned regarding the effects on the economy of higher interest rates, in particular on residential and commercial real estate. A 20% drop in retail and office prices would have serious consequences for banks and investors. Furthermore, the ECB is sensitive to the need to invest enormously – at least 3 points of GDP – to achieve the energy transition.

Finally, growth in the euro zone was 0.15% in the first half of 2023 and the economic indicators are at a fairly…

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