First priority is inflation, then growth

First priority is inflation, then growth
First priority is inflation, then growth

With European Central Bank chief Christine Lagarde putting price stability first, with growth to follow, the market is looking for the “neutral interest rate” level.

Measures taken by the European Central Bank may weigh on growth, but price stability is the main priority, President Christine Lagarde told an event with French high school students on Friday. Speaking at the French central bank, he said that in setting its monetary policy the ECB had to take into account all factors affecting inflation as well as risks to growth. He also admitted that if some measures taken by the ECB burden growth, this is a risk that the Bank must take, since price stability is a primary objective.

Regarding the level of the “neutral interest rate” it is a relative concept as there is no single way of calculating it. Theoretically the interest rate is called neutral that which, while contributing to the stabilization of inflation, does not positively or negatively affect the course of economic development. Regarding there are no announcements from institutional bodies about its exact amount.

Thus, the governor of the Bank of Greece, Giannis Stournaras, has determined the amount of the neutral interest rate between 1.5% and 2%, while the counterpart of Villery de Galhau has stated that it should be less than or equal to 2%.

Under these conditions, and growth seems to be sacrificed on the altar of inflation, the climate in the bond markets remains negative with their yields maintained at a high level.

In HDAT, transactions of 34 million euros were recorded, of which 20 million euros related to purchase orders. The yield on the 10-year bond was held at 4.32% versus 1.76% for the corresponding German bond, bringing the spread to 2.56% from 2.60% that closed yesterday.

In the foreign exchange market, the dollar strengthened against the euro with the European currency trading at $0.9976 in the early afternoon from $0.9999 at the market open. The indicative price for the euro/dollar exchange rate announced by the ECB was 0.9998 dollars.

Source: AMPE

The article is in Greek

Tags: priority inflation growth

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