Weber being more explicit than what LBS said earlier today. Basically, if 1% is considered too low, 1.25% or 1.5% would be as well.
Domestic orders in Germany today and BdF Confidence survey both firm. Expect 25bp/qtr from ECB until they get to at least 2%.
“I wouldn’t do anything here to try to correct market expectations at this point,” Weber told Bloomberg News in Frankfurt today when asked about investors pricing in an increase in the benchmark rate to 1.75 percent by the end of the
year. It was the intention of the ECB to bring forward market expectations and “I see no reason at this stage to signal any
dissent with how markets priced future policies,” he said.\
Weber also said the ECB’s latest inflation forecasts may underestimate price pressures.
ECB Board Member Bini Smaghi said this morning that the increase in energy and agricultural raw materials prices is a “permanent” phenomenon. He also said that the wider the gap between real interest rates and GDP growth, the higher the risk of instability, and that keeping interest rates at 1% would further increase the rate of monetary expansion.
Also, EU Commissioner for Economic Affairs Rehn keeping positive sentiment alive about reducing borrowing rates for Ireland and Greece:
“The issue now, today and tomorrow is debt sustainability and I can see that there’s a case to be made to reduce the interest rates paid by Greece and Ireland”.
Agreed, and should it happen this is not good for the euro, though markets will think it is.
Higher rates both increase national govt deficits and exacerbate credit issues.