The central bankers are popular when interest rates lower because they relieve the bags, encourage economic growth. And they tend to fall unfriendly when inflation squeezes and have no choice but to raise the price of money to avoid a pernicious spiral. What does not change in one or the other scenario is a certain degree of opacity: nobody knows how far they are willing to arrive in their ups and downs of types. Probably, given the changing data, they don’t even have it clear. But now, when inflation is directed to its 2%target, that is the big question. Where will Frankfurt leave the rates? What is the floor of this cycle of cuts? To answer it, the concept of neutral type has gained notoriety, the one that does not stimulate or contract the economy, about which they ask its president, Christine Lagarde, in each press conference. The most paloma sector of the Eurobanco tends to place it below, the hawks above, and others directly believe that entering that debate is a waste of time.
The ECB, finally, has entered the rag. This Friday has published a study whose main conclusion is that there is no magical figure: “While neutral type estimates provide complementary information for monetary policy decisions and help communicate their orientation, they cannot be considered a mechanical indicator of the policy adequate monetary at a given time. When applying monetary policy, there is no other alternative than making decisions on the basis of an exhaustive analysis of the data and its macroeconomic implications ”. That is, it must be the statistics that emerge those that not to stay in restrictive territory – which penalizes growth – or expansive – which can reheat the economy – when inflation moves in the desired area of 2% in a sustainable way, just What the bank has repeated again and again.
Even so, the report, prepared by economists Claus Brand, Noëmie Lisack and Falk Mazelis collects that estimates of the most recent neutral type range between 1.75% and 2.25%, although it considers that said range “should be considered merely indicative ”, given the uncertainty of the models used. “The economic methods used to estimate model parameters generate a complete set of plausible alternative estimates,” warns the text. “The different data samples and the reviews of the above data amplify the impact of uncertainty, which generates great variations,” he adds.
That is, there is no reliable neutral type that helps conduct monetary policy in real time, since it usually goes behind the facts. “By when this equilibrium level is expected to be reached, it is very possible that the economy has already been exposed to additional shocks, possibly causing the balance interest rate to deviate and demand a monetary policy to compensate for these shocks,” they say ECB experts.
These deficiencies and uncertainties that surround it do not invalidate it, clarifies the document, as a useful study variable, but in a more theoretical than practical. “Despite the uncertainties that this implies, the monitoring of the general movements of the natural rate over time provides qualitative information on the underlying economic trends.”
The types are currently in 2.75%, and although most agree that the neutral type is below, the question about this alleged equilibrium value awakens positions found. Within the Governing Council there are diversity of opinions, from which they place it in the lower part of the range, case of Lagarde, which spoke of a neutral type between 1.75% and 2.25%, to which which They point above, such as 2.2% -2.8% in which the head of the Bank of Finland, Olli Rehn. Or the most round, but broader, and therefore, less precise, 2-3% of the German Isabel Schnabel.
Others, such as Vice President Luis de Guindos, believe that it is a useless tool. A vision that shares an ancient heavyweight of the ECB such as former vitorous Vitor Constanzio, who has been very critical of the effort of central bankers, academics and media in giving importance to the neutral type. And he has defined it as a useless effort. “It is a concept that cannot be used for monetary policy practical decisions. It cannot be estimated reliably and varies over time, ”he said in his X account, it would be, therefore, something like trying to catch water with his hands: a squeezed and impossible task.
Piero Cipollone, a member of the BCE Council, is also skeptical. Especially when forks are offered. This was expressed in an interview with Reuters This Thursday. “When you have an estimate range of 50 or 75 basic points, then it is a conceptual tool and does not have much influence on politics, given the high uncertainty. Let us take as an example the estimates that are between 1.75% and 2.25%. If you are close to the target, these are two completely different monetary policies. It is such a wide range that a figure could imply that it is below the objective and another that is above. Therefore, “neutral” is a very powerful analytical concept, but not too useful to establish monetary policy, given this implicit uncertainty. “
Guindos: “We do not know what the end point of interest rates will be”
Hours before the ECB revealed its study on the neutral type, the vice president of the entity, Luis de Guindos, intervened in Madrid in the VI Economic Meeting Mutuality Insurance. The number two of the entity insisted that inflation is slowing down towards its objective of 2%, and although it refused to mark a soil for the types, it dropped, as the markets already discount, “although we do not know what the end point will be From the evolution of interest rates, the trajectory is relatively clear and will be similar to that of recent months. Always taking into account that any deviation from our inflation objective would make us react, ”he said.
The Spanish argued that the stagnation of the euro zone in the last quarter of 2024 was due to the fact that neither the consumption nor the investment are tracing the flight. And he attributed it to problems of trust in an environment of high uncertainty, “the highest from the pandemic,” according to his vision, for the policies of the new US administration headed by Donald Trump. For this year, however, they predict a certain recovery thanks to the improvement of consumption, and that inflation, after new short -term rebounds, converges towards the desired 2% in spring. The bank projects that the wages are slowing down, and they trust that this will serve to deflate the prices of the services, the great battle horse of the moment.
