Because the ECB will continue to be divided
What's happening in the ECB and what it will decide at the meeting on Thursday 14 September. The analysis of Antonio Cesarano, Chief Global Strategist of Intermonte
In view of the ECB meeting on Thursday, two main factors must be taken into consideration: the split between hawks and doves and the different composition of the voting board between September and October.
THE HAWKS OF THE ECB
On the first point, the "hawk" component (led by the Bundesbank) is pushing for a rate increase, attributing the decline in domestic demand, which has been underway since the end of 2022 (especially in Germany ), to a preventive attitude aimed at extreme caution on the part of consumers, for fear of high and persistent inflation.
BUNDESBANK OPTICS
Consequently, from the Bundesbank's perspective, a rate hike would serve to try to convince consumers that the ECB is serious about fighting inflation.
RATE RISE?
In this regard, a rate increase would also be useful to the extent that it could slow down the depreciation of the euro, reducing the risks of imported inflation, particularly now that Brent has returned to $90/b.
THE ROLE OF DOVES
Diametrically opposite speech on the part of the doves, an attitude typically expressed in Southern Europe, where the decline in demand was much more recent.
ECB BOARD FACTOR
The second factor concerns the composition of the ECB voting board: in September, based on the usual monthly rotation, some "hawks" (for example Germany and Belgium) will not vote. The opposite is true for October, when some "doves", such as Spain and Ireland, will not vote.
THE SCENARIOS FOR THE ECB MEETING ON 14 SEPTEMBER
The meeting could however end with a more "hawkish" outcome: Lagarde could in fact alternatively proceed with an increase now, or take a pause, portraying it in the press conference as most likely not definitive.
In this way it would implicitly imply that the increase would only be postponed to the meeting on 24 October.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-la-bce-continuera-ad-essere-spaccata/ on Wed, 13 Sep 2023 05:51:51 +0000.