Makhlouf says ECB's next move already anticipated by markets

• The ECB's decision at the upcoming meeting will come as no surprise to anyone.
• Current monetary policy is not restrictive.
• Policy would only become restrictive, roughly speaking, once rates exceed 2.75%.
• The ECB must be prepared to raise rates to that level if "a significant shift in an upward direction, in terms of inflation risks" occurs.
• If inflation heads in the wrong direction, the ECB will have to respond accordingly.
• It remains uncertain whether another rate increase will be necessary after next week's move.
• The ECB should maintain its meeting-by-meeting decision-making process.
• Inflation expectations are well-anchored, with no signs of second-round wage effects.

The complete transcript is available from the Financial Times, though access may be restricted.

Markets have already fully priced in a rate hike for next week, so the announcement is no surprise. This aligns with the ECB's expected course, though Makhlouf noted that growth forecasts could be revised "slightly" upward.

Regarding the policy outlook, next week's hike might be the ECB's last this year. A December move remains uncertain and hinges on Middle East developments and inflation trends.

Markets are pricing in approximately 47 basis points of rate hikes by year-end, including the expected move next week.

Makhlouf characterized next week's hike as a positioning move. He continues to view policy as non-restrictive until rates surpass 2.75%. For context, most ECB policymakers estimate neutral rates around 1.75% to 2.25%.

Thus, even after next week's hike, policy will be only mildly restrictive. If inflation pressures intensify, that level may be insufficient, requiring the ECB to prepare for additional tightening.