Macro with boot and Mujagić | Why the European Central Bank will stop raising interest rates before summer

about the episode

Although it has often been suggested that rate hikes from the European Central Bank have not yet stopped, Mojácic believes the end of these hikes is imminent. “I think they will stop before summer.”

This Mujagic is based on research by economists affiliated with the International Monetary Fund and the Bank for International Settlements. They studied credit card payments in Germany, the largest country in the eurozone, between 2017 and 2021 to see how interest rate changes affected consumption.

This shows that the effect is very strong, and we already know that, but it also appears that the effect can be seen in consumer spending patterns after only two months. So we react faster to interest rate changes than the consumer did 30 years ago.

up or down

We also looked at whether there was a different response to an interest rate increase compared to a rate cut. It seems that the impact would be significant if the European Central Bank raises interest rates. We all suffer from this and it is clearly visible in our spending pattern. But if interest rates are lowered, there will be no effect at all. Damn nothing happens.

No explanation was given for this, but Mojáczyk thinks he knows a reason. “Interest rates are lowered when the economy is bad. People are often pessimistic, they worry about the future and they don’t like to spend money. This would be the explanation for the lack of reaction when interest rates are cut.

Also read | Interest rates are still going up by percentage

This European study follows a regional study by the Kansas Federal Reserve. At the end of last year, this showed that the impact of the interest rate hike would also be noticeable sooner than previously expected. Usually, a change in the interest rate after a year and a half or two years will have a big impact. According to these two researchers, this is different. “

Although it has been said many times and by many people that the ECB will continue to raise interest rates for a while, macroeconomist Mojácic believes that the end of the increases is imminent. “I think they will stop before summer.” (Unsplash) The end of the hike is in sight

It has already been pointed out several times that the ECB will raise interest rates more often. This was also said by Claes Nott, member of the Executive Council of the European Central Bank and president of the De Nederlandsche Bank, among others. However, according to Mujagic, the ECB should look closely at examining Germany’s spending pattern. They have to print this report 26 times and then distribute it to the central banks of the eurozone. It’s not that the effects of higher interest rates will only be visible in a few years, they are already there. This is why I believe that the ECB will stop raising interest rates before the summer.

Doomsday scenario in the UK

At the same time, Mojácic predicts a long and deep recession for the British economy. The problems in the Netherlands are significant, but fleeting in nature. It is manageable and never out of control. While the UK is dealing with structural problems.

Mojácic sees a clear connection with Brexit. You cannot ignore the fact that they are leaving the European Union. Under ideal circumstances, that would have already been a blow to the economy, but in hindsight you can say that the British left the EU at the worst possible moment. This has consequences for the economy. Partly because of Brexit, Britons are having a more difficult time with staff shortages, and free movement of people is no longer possible with the UK since Brexit.