European Central Bank

Central bank analysis rarely goes beyond predicting the timing of the next interest rate step and the total number of interest rate steps that will be implemented over a given period, writes Jeroen Blokland.

A recent European Central Bank study calling for a regulatory framework to address instability in the market for Real Estate Investment Funds, known as Reifs, has been downplayed by a growing number of real estate specialists contacted by Investment Officer in Luxembourg and London. 

Banks, not investment funds, are responsible for financing the most carbon-intensive activities, the European Central Bank has concluded on the basis of experimental new indicators for sustainable finance. “The companies they finance produce relatively more emissions in their business operations to achieve a given level of revenue,” the ECB said when presenting the new indicators on Tuesday.

“In accordance with Article 105(1) of the Treaty, the primary objective of the ESCB shall be to maintain price stability.”

“Walking the narrow path” is an expression among central bankers about striking a fragile balance between reining in inflation and not plunging the economy into the ravine. Friday showed how difficult that task has become. 

Financial markets expect a further increase of 140 basis points in European Central Bank interest rates by the end of the year, suggesting a steady path of increases of half a percent per six-weekly meeting. Worsening economic conditions in the coming months could however lead to an early shortening of the tightening cycle. It is balancing on a thin rope, investors and strategists tell Investment Officer.

European central bank policy makers will meet in Amsterdam on Thursday at the invitation of Klaas Knot, the Dutch central bank governor who is known for his hawkish approach to interest rates and his support of a 50 basis point rate hike in July. And: when will the ECB start discussing Quantitative Tightening, like the Fed?

The European Central Bank now is convinced that it will raise its benchmark eurozone interest rate at its 21 July monetary policy meeting and said it expects that its interest rates will no longer be negative by September. Its latest statement also indicates that the ECB is hedging its bets for upcoming medium-term policy moves in order to to add to its flexibility to act. 

If there is one economic lesson my father, a construction engineer, taught me, it’s that mortgage rates in Europe always follow what’s happening in the United States. When rates go up across the Atlantic, they’re bound to do the same in our part of the world. So when it comes to locking in a good mortgage rate, look west.

Russia’s invasion makes it more difficult for central banks to keep inflationary pressures at bay. Rising commodity prices weigh on the cost of living in the US and Europe. Restrictive effects of the Ukraine war on economic recovery are also increasing, but a full-fledged stagflation scenario so far appears premature, one investment strategist told InvestmentOfficer.