Monetary Policy
Ultraloose ECB Monetary Policy Signals Faster Tightening Ahead
Why the European Central Bank is likely to raise rates twice next year.
This article is for subscribers only.
The European Central Bank announced in June that it would soon end its asset purchase program. It also indicated that the first rate hike will come after summer 2019. Our estimates of the neutral policy rate suggest the second increase shouldn’t be too far behind.
Monetary policy is looser than called for at this stage of the economic cycle, according to our analysis. Given the ECB’s enormous stock of asset purchases, the refinancing rate might need to be 1.25 percentage points higher to keep the euro-area economy on trend. If the stance of policy prompts overheating, the ECB may find it has some catching up to do.