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European long-term interest rates rose to a two-month high on Friday after the Financial Times suggested the European Central Bank (ECB) could raise interest rates as early as 2023.
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The ECB expects inflation to rise to the 2 percent target by 2025. Chief economist Philip Lane said this in a private meeting with German economists, the British business newspaper Financial Times reported. The inflation forecast was not yet known. On that basis, the newspaper concluded that the ECB assumes that it will probably raise interest rates in two years’ time.
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An ECB spokesperson said in a response that the content of the article is not correct. “Mr Lane has never said in any conversation that inflation will rise to 2 percent shortly after the end of the projection horizon.” That horizon now runs until the end of 2023. ‘The conclusion on the interest rate does not correspond with our forward guidance (communication about the expected interest rate policy, ed.).’
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Long-term interest rates in the eurozone rose to their highest level in more than two months after the newspaper article was published. The ECB’s response had little impact. The German 10-year yield closed at -0.28 percent, compared to 0.30 percent on Thursday. The Belgian interest rate clocked in at 0.02 percent.
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The ECB raised its inflation forecast last week. She now expects 2.2 percent inflation in 2021, 1.7 percent in 2022 and 1.5 percent in 2023. The central bank does not publish forecasts for later years.
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“The ECB should stop the practice of exclusive meetings with the private sector if what is said there is not transparent,” Sven Giegold, an influential MEP, told Reuters news agency. He announces that he will address this in a letter to ECB president Christine Lagarde. “You don’t know who to believe, the newspaper or the ECB.”
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Lane stopped private talks with major asset managers earlier this year after criticism. But talks with groups of economists continued. Lagarde defended those talks.
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Meanwhile, a few ECB executives signaled that inflation could turn out somewhat higher than last week’s forecasts in the coming years. In an interview with the Financieele Dagblad, Vice-President Luis de Guindos referred to the supply problems and the risk of a faster rise in wage costs.
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