FRANKFURT (Dow Jones) – According to a model it uses, the European Central Bank (ECB) will have to raise interest rates in the current cycle less than expected on the financial markets in order to achieve 2 percent inflation in the medium term. As the Reuters news agency writes, citing four sources, the “Target-Consistent Terminal Rate” model sees the key interest rate at 2.25 percent.
In the event of a simultaneous balance sheet reduction, the interest rate hike process could therefore end somewhat earlier. Financial market variables, on the other hand, see the key interest rate peaking at just over 3 percent. According to estimates, the so-called neutral interest rate is 2 percent. According to the new model, the interest rate would only have to be raised slightly into restrictive territory in order to bring inflation down from the current 10 percent to 2 percent.
According to the report, the model was presented to the ECB’s Governing Council at its meeting in Cyprus last week. There it should have triggered mixed reactions. Some participants have criticized some of his basic assumptions, it is said.
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(END) Dow Jones Newswires
October 14, 2022 05:39 ET (09:39 GMT)
