Eco week: Monetary desynchronisation, a headache to come?
|Monetary desynchronisation between the US and the Eurozone seems unavoidable due to a very different performance in terms of inflation. Whether this will complicate the ECB’s task of reaching its inflation target depends, in the short run, on the impact on financial conditions in the euro area. This influence will probably be small. In the medium run, when the US tightening cycle is well underway, US domestic demand growth will be slowing down, which will weigh on imports and hence Eurozone exports to the US. This would complicate matters for the ECB if by then, inflation has not yet reached its target.
The monetary winds are gradually changing direction. They haven’t yet turned into a headwind but, at least in some countries, they will end
up acting less as a tailwind. The Norwegian central bank has raised its policy rate to 0.25% last week and has indicated that, given the strong
recovery in the Norwegian economy, it has become increasingly likely that by the end of 2022, the official interest rate would reach 1.25%
According to the Bank of England’s monetary policy committee, recentdevelopments appeared to have strengthened the case for modest tightening of monetary policy over its forecast period, which runs until 2024 Q3.
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